Bloomberg News

Dodgers, EPA Rules, Immigration, Innkeepers in Court News

October 12, 2011

(Updates immigration law in Trials section and adds mortgage costs in Trials, AT&T in Lawsuit News and Julius Baer in New Suits.)

Oct. 12 (Bloomberg) -- Los Angeles Dodgers season-ticket holders, including the heirs of singer Frank Sinatra, urged a judge to let Major League Baseball Commissioner Bud Selig try to sell the bankrupt team.

The request was among dueling court papers filed yesterday in which Selig, News Corp.’s Fox Sports and ticket holders lined up against team owner Frank McCourt, who is battling to retain control of the club.

The Dodgers claim that since McCourt bought the team in 2003 for about $325 million the club has seen record success financially and on the field. The team wants court permission to auction future television rights to raise enough money to exit bankruptcy.

Fox, Selig and the Ad Hoc Committee of Season Ticket Holders asked U.S. Bankruptcy Judge Kevin Gross in Wilmington, Delaware, to say no.

The auction “appears to be self-motivated by Mr. McCourt and his personal financial issues and not the interests of the Dodgers and its core creditors, the season ticket holders,” the ticket owners said.

Yesterday was the deadline for written arguments on competing proposals that would either force McCourt to sell the team or allow him to auction the TV rights.

The Dodgers filed for bankruptcy in June after Selig refused to approve a new television contract that McCourt negotiated with Fox Sports, the current broadcaster.

The ticket holders want Gross to approve Selig’s motion to strip McCourt of exclusive control of the Dodgers’ bankruptcy case. That would allow MLB to file a reorganization plan in which McCourt would be forced to sell the team.

For more, click here.

Lawsuit News

Cerberus, Innkeepers Trial Over Buyout Delayed Again

A trial over Cerberus Capital Management LP’s decision to end a deal to buy 64 hotels from Innkeepers USA Trust was delayed for a third time.

The trial is scheduled to begin today at 10 a.m. in U.S. Bankruptcy Court in Manhattan, according to court papers filed yesterday.

The start date was initially postponed from Oct. 10, when two people with knowledge of settlement talks said Cerberus might resolve the dispute by agreeing to buy the hotels at a lower price. Innkeepers sued after Cerberus, a New York-based private-equity firm, and Chatham Lodging Trust in August sought to cancel their $1.1 billion purchase.

The companies agreed to the sale in May and Innkeepers won approval of its reorganization terms in June. The company, in bankruptcy since July 2010, operates 71 hotels, including Residence Inns, Marriott hotels and Hampton Inns.

Cerberus cited a clause in the sale agreement allowing the buyers to back out if there was an adverse change in the lodging company’s business or overall economy.

The lawsuit against Cerberus is Innkeepers USA Trust v. Cerberus Four Holdings LLC, 11-02557, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Chapter 11 case is In re Innkeepers USA Trust, 10-13800, in the same court.

ABN Amro Wins Review of $267 Million Madoff Trustee Suit

ABN Amro Bank NV, the bank run by a Dutch government agency, persuaded a U.S. district judge to take over a $267 million lawsuit brought by the liquidator of Bernard Madoff’s firm.

The trustee, Irving Picard, sued ABN Amro’s Irish affiliates in bankruptcy court, demanding the return of funds they allegedly got from swap transactions with Rye Select Broad Market XL Portfolio Ltd. Picard, who wants $400 million from Rye, said it made leveraged investments with Madoff. U.S. District Judge Jed Rakoff said the case resembled others he’s now considering, according to a court filing.

More than 60 related lawsuits await Rakoff’s attention, court documents show. Those and others may be affected by his rulings on whether Picard can recoup funds protected by the so- called safe-harbor law that governs securities transactions.

The case is Picard v. ABN Amro Bank (Ireland), 11-cv-06877, U.S. District Court, Southern District of New York (Manhattan).

AT&T, U.S. Ask Judge to Deny Google Entry into T-Mobile Case

AT&T Inc. and the U.S. asked the federal judge overseeing the government’s lawsuit seeking to block the company’s purchase of T-Mobile USA Inc. to deny a bid by Google Inc. to enter the case to protect its confidential data.

In separate filings in Washington yesterday, AT&T and the Justice Department told U.S. District Judge Ellen Segal Huvelle that Google’s request for advance notice of possible disclosures of “competitively sensitive” data is unnecessary and would slow down the litigation.

AT&T said in the filing that its ability to select expert witnesses could be harmed by Google’s proposal that non-parties in the case get five days’ notice before confidential data is turned over to its experts.

Last month, Google, which provided the information to the Justice Department in its investigation of the proposed T-Mobile deal, asked Huvelle to amend her order governing confidential data in the case, claiming that “without such additional protection, Google and other non-parties could find their confidential information -- such as Google’s business plans related to Android -- in the hands of competitors.”

The Justice Department sued Dallas-based AT&T and Bonn- based Deutsche Telekom AG’s T-Mobile unit on Aug. 31, saying a combination of the two companies would “substantially” reduce competition. Seven states and Puerto Rico joined the government’s effort to block the deal, which would make AT&T the biggest U.S. wireless carrier.

In its filing, the Justice Department and the states said the protective order in the case already offers Google and other non-parties protection from confidential material being publicly released in filings and during court proceedings.

The parties are required to file confidential data under seal and Huvelle has the authority to close the courtroom if such material is going to be discussed, they said.

Adam Kovacevich, a spokesman for Mountain View, California- based Google, and AT&T spokesman Mike Balmoris didn’t immediately respond to e-mail messages seeking comment.

The case is U.S. v. AT&T Inc., 11-cv-01560, U.S. District Court, District of Columbia (Washington).

For the latest lawsuits news, click here.

Trials and Appeals

Alabama Opposes U.S. Bid to Delay Immigration Law for Appeal

A new Alabama immigration law empowering the police to question the status of persons otherwise detained shouldn’t be blocked while the U.S. government and civil-rights groups appeal a ruling allowing its enforcement, state lawyers told a federal appeals court yesterday.

Judge Sharon Lovelace Blackburn in Birmingham last month rejected challenges to the police provision as well as other sections of the Beason-Hammon Alabama Taxpayer and Citizen Protection Act.

The legislation requires schools to collect data on the enrollment of children of unlawful residents, criminalizes the failure of those unlawfully in the U.S. to complete or carry alien registration documents, and makes it a felony for those illegally present to do business with the state or any of its political subdivisions.

The judge ruled in the federal government’s case and two others -- a parallel suit filed by the American Civil Liberties Union and Southern Poverty Law Center, and one brought by church leaders.

The civil-rights groups also asked the appeals court for an order that prevents the state from enforcing those parts of the law being fought on appeal.

Blackburn barred the enforcement of parts of the act making it illegal for unregistered aliens to apply for jobs or work in the state, as well as a provision making it a crime to transport or harbor them. The state says it will appeal.

First-term Governor Robert Bentley, a Republican, signed the legislation into law on June 9. The federal government’s failure to enforce its own immigration laws necessitated the measures taken by his state, he has said.

The federal government argues that only it has the authority to set immigration policy. The rights groups contend the new laws are unconstitutional. The clergy haven’t sought to appeal the ruling in their case.

Separately, Indiana Attorney General Greg Zoeller, in an unrelated ACLU lawsuit challenging his state’s new immigration law, said he’s asking an Indianapolis federal judge to add the U.S. as a party needed to resolve the dispute.

“This case is about what authority the states have in the absence of federal guidance in immigration policy and enforcement,” Zoeller said yesterday in a press statement. “The Department of Justice should represent the federal government and not leave it to others.”

Xochitl Hinojosa, a Justice Department spokeswoman, said the department is reviewing Indiana’s motion.

The cases are U.S. v. State of Alabama, 11-14532, and Hispanic Interest Coalition of Alabama v. Bentley, 11-14535, U.S. 11th Circuit Court of Appeals (Atlanta).

The Indiana case is Buquer v. City of Indianapolis, 11cv708, U.S. District Court, Southern District of Indiana (Indianapolis).

Accused Underwear Bomber Sought Martyrdom, U.S. Tells Jurors

The man accused of the Christmas 2009 attempt to blow up a Northwest Airlines plane with explosives hidden in his underwear wanted to be a martyr, a prosecutor told jurors yesterday as his terrorism trial began.

Umar Farouk Abdulmutallab, 24, is accused of trying to detonate explosives in his underwear as Northwest Airlines Flight 253, with 279 passengers and 11 crew members, approached Detroit on Dec. 25, 2009. He set fire to his clothing and a wall before passengers subdued him, prosecutors said. Northwest is a unit of Delta Air Lines Inc.

Abdulmutallab, who wore a bluish-gray tunic adorned with white and gold running below his waist in Detroit federal court yesterday, faces eight terrorism-related counts in, including attempted murder and attempted use of a weapon of mass destruction. Abdulmutallab, a native of Nigeria, traveled to Yemen to become involved in a “violent jihad on behalf of al- Qaeda” and practiced detonating explosives before the failed attack, the U.S. claims.

The defendant, who is representing himself at the trial, faces a life sentence if convicted. Abdulmutallab, who has pleaded not guilty, hasn’t yet revealed his defense. His arguments may include a claim that the explosives were insufficient to blow up the plane, a lawyer assigned to help Abdulmutallab at the trial has said.

Abdulmutallab said he wouldn’t deliver an opening statement and would reserve the right to do it later.

U.S. District Judge Nancy Edmunds, who is hearing the case, yesterday rejected a request by the defendant seeking to bar the government from calling the materials he used a “bomb” or “explosive device.”

A jury of three men and nine women was selected last week for the trial before Edmunds.

The case is U.S. v. Abdulmutallab, 10-cr-20005, U.S. District Court, Eastern District of Michigan (Detroit).

For more, click here.

EPA Cement Factory Rules Are Flawed, Industry Tells U.S. Court

U.S. rules meant to cut mercury emissions and other air pollutants at cement plants are too restrictive and based on flawed data, a lawyer for the industry told a federal appeals court.

A three-judge panel in Washington heard arguments yesterday in challenges to Environmental Protection Agency regulations set to be enforced in 2013. The cement industry predicts the rules may cost $3.4 billion and shutter 18 of 100 plants.

“No existing plant can achieve any of these in combination,” said Carter Phillips, a partner at Sidley Austin LLP in Washington who represents the Portland Cement Association, an industry trade group. He told the panel that the EPA rules are “unreasonable” because they are based on “pollutant-by-pollutant” analyses instead of the sources of pollution as a whole.

The EPA says the cost would be no more than $950 million.

The Portland Cement Association, based in Skokie, Illinois, is also lobbying Congress to block the EPA rules on behalf of companies such as Cemex SAB, the largest producer of cement in the U.S., and Holcim Ltd.

Last week, the U.S. House of Representatives passed legislation that would force the EPA to scrap and rewrite the cement plant regulations. The bill hasn’t been taken up by the Senate. President Barack Obama’s administration issued veto threats on Oct. 3.

At yesterday’s hearing, judges David Tatel and Janice Rogers Brown asked Justice Department lawyers whether EPA’s rulemaking put the cement industry in a position of making investments that it may learn later it didn’t have to make.

Justice Department attorney Daniel Dertke said the agency was required to issue regulations based upon the information it had at the time.

“There has to be an end point for the EPA to issue enforceable emission standards,” he said, adding that the rules were “a long time coming.”

Tashiba Peoples, another department lawyer, told the judges that Portland Cement Association commented on every proposal before the agency and that some of those comments influenced its decision-making.

The cases are Portland Cement Association v. EPA, 11-1358 and 11-1359, U.S. Court of Appeals for the District of Columbia (Washington).

Environmental Groups Sue U.S. Over Rejected Ozone Standards

U.S. President Barack Obama’s rejection of stricter ozone standards was challenged by environmental groups as “illegal and irresponsible” as they asked a federal appeals court to overturn the decision.

The organizations want the court to force the administration to impose tighter caps on the main ingredient in smog, according to a statement yesterday on the lawsuit, which was filed in Washington.

Obama told the EPA last month to quash the rule after industry representatives including the U.S. Chamber of Commerce, National Association of Manufacturers and the Business Roundtable lobbied White House officials to drop it because of the weakened economy.

“We were counting on the administration to set ozone standards that would protect our health but now have to go back to court to get the protection we all deserve,” John Walke, clean-air director for the New York-based Natural Resources Defense Council, said in a statement on the lawsuit.

The American Lung Association, Environmental Defense Fund and National Resources Defense Council asked the U.S. Court of Appeals in Washington to review the administration’s decision in a petition filed yesterday. The court has jurisdiction over administrative rulemaking by federal agencies.

“This administration has put in place historic standards and safeguards for clean air,” Betsaida Alcantara, an EPA spokeswoman, said in an e-mailed statement. “We will revisit the ozone standard and review the latest science in compliance with the Clean Air Act.”

EPA Administrator Lisa Jackson told a congressional panel last month the agency recommended a cap for ozone at 70 parts per billion, below the level of 75 parts per billion issued in 2008 under former President George W. Bush. A scientific advisory panel had said a limit of 60 to 70 parts per billion was necessary to protect public health.

Jackson had called the Bush-era standard “not legally defensible.” The EPA has told states it would begin enforcing that regulation.

After release of the EPA’s proposed changes was delayed for months, Obama announced Sept. 2 that the revised ozone restrictions would be reconsidered because it was scheduled for a routine review in 2013 and he wanted to “underscore the importance of reducing regulatory burdens and regulatory uncertainty.”

The case is American Lung Association v. U.S. Environmental Protection Agency, 11-1396, U.S. Court of Appeals for the District of Columbia (Washington).

U.S. Supreme Court to Review Mortgage Closing Costs Case

The U.S. Supreme Court agreed to clarify the scope of a federal law aimed at protecting home buyers from being overcharged by companies that provide real estate settlement services.

The justices yesterday accepted an appeal from a group of Louisiana consumers seeking to sue Quicken Loans Inc. over fees they paid at their mortgage closings.

The home buyers say Quicken charged as much as $1,100 in “loan discount fees” without providing the interest-rate reduction those fees typically bring.

The fight at the high court centers on a provision in the 1974 Real Estate Settlement Procedures Act that bars settlement providers in at least some cases from collecting money for services they didn’t perform.

The question for the justices is whether that provision applies only when two companies split the disputed fee -- as in the case of a kickback. A New Orleans-based federal appeals adopted that reading of the statute in throwing out the suit against Detroit-based Quicken, putting it at odds with other courts around the country.

The Obama administration urged the Supreme Court to accept the home buyers’ appeal and overturn the lower court ruling.

Quicken said in a statement that the suit’s underlying premise is wrong.

“It is undisputed that the loan discount points collected in this case were earned and resulted in a lower interest rate for the borrowers,” the company said.

Quicken is a unit of closely held Rock Holdings Inc.

The case is Freeman v. Quicken, 10-1042.

For the latest trial and appeals news, click here.

New Suits

Failed Bank’s Former Executives Sued by SEC Over Hidden Losses

Three former United Commercial Bank executives misled investors by concealing at least $65 million in loan losses before the San Francisco-based lender collapsed in 2009, the U.S. Securities and Exchange Commission said.

Thomas Wu, who was the bank’s chief executive officer, worked with chief operating officer Ebrahim Shabudin and senior officer Thomas Yu to hide losses on loans and real estate assets from auditors, causing UCBH Holdings Inc. to understate 2008 operating losses, the SEC said in a complaint filed yesterday in California.

United Commercial Bank was one of the 10 largest bank failures to result from the 2008 financial crisis, causing a loss of $2.5 billion to the Federal Deposit Insurance Corp.’s insurance fund, the SEC said. Craig On, the bank’s former chief financial officer, separately agreed to pay $150,000 and a accept five-year suspension from practicing before the SEC as an accountant to resolve claims that he helped the fraud, the agency said.

The “charges reflect an all too familiar pattern -- corporate executives once seen as rising stars embrace deception to avoid losses and conceal negative news, with investors and the FDIC insurance fund left to pick up the pieces,” SEC Director of Enforcement Robert Khuzami said in a statement.

The U.S. Attorney for the Northern District of California yesterday announced parallel criminal charges against former employees of the bank, and the FDIC announced enforcement actions against 13 individuals for violations of federal banking regulations.

Phone calls to Steven Bauer, an attorney for Wu; James Lassart, a lawyer for Shabudin; Stephen Kaus, a lawyer for Yu; and Nanci Clarence, an attorney representing On, weren’t immediately returned. On didn’t admit or deny wrongdoing in settling the SEC’s claims.

Julius Baer Bankers Said to Be Charged in Offshore Tax Probe

Two client advisers at Swiss bank Julius Baer Group Ltd. were charged with helping U.S. customers evade taxes, according to an indictment and a person familiar with the matter.

Daniela Casadei and Fabio Frazzetto conspired with more than 180 U.S. clients and others at the bank to hide at least $600 million in assets from the Internal Revenue Service, according to the indictment in federal court in New York and the person, who wasn’t authorized to speak about the matter. The indictment refers to the bank as Swiss Bank No. 1.

“The bank is one of a number of Swiss financial institutions supporting the ongoing tax negotiations between the U.S. and Switzerland and is cooperating with the U.S. government investigation,” Baer said in an e-mailed statement.

The charges come amid a U.S. crackdown that includes grand jury investigations of eight foreign banks. Prosecutors have filed tax charges against three dozen former U.S. clients of UBS AG and Credit Suisse Group AG, Switzerland’s two biggest banks, and London-based HSBC Holdings Plc, Europe’s biggest bank. At least 21 bankers, advisers and attorneys also have been charged.

The case is U.S. v. Casadei, 11-cr-866, U.S. District Court, Southern District of New York (Manhattan).

--With assistance from Mark Drajem, Joshua Gallu, Tom Schoenberg and Greg Stohr in Washington; Tiffany Kary and Linda Sandler in New York; Steven Church in Wilmington, Delaware; Andrew Harris in Chicago; Laurence Viele Davidson in Atlanta; David Voreacos in Newark, New Jersey; and Margaret Cronin Fisk and Steve Raphael in Detroit. Editor: Stephen Farr

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net.

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


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