Bloomberg News

BP, Deutsche Bank, HSBC, UBS, Merrill Lynch in Court News

November 16, 2011

(Adds BP in top section, HSBC in Lawsuits and FrontPoint Partners and Merck in Verdicts.)

Nov. 15 (Bloomberg) -- BP Plc must face claims over the 2010 oil spill in the Gulf of Mexico in lawsuits by the states of Louisiana and Alabama, a judge said.

The states can sue for negligence and products liability under general maritime law and are eligible for punitive damages, U.S. District Judge Carl Barbier said yesterday. He dismissed claims brought under state environmental laws, including demands for civil penalties, finding they were preempted by federal law governing the Outer Continental Shelf.

“Because the source of this discharge occurred within an exclusive federal jurisdiction, the OCS, the only available law is federal law,” Barbier said yesterday in a written decision. “The state-law claims are dismissed.”

The Macondo well blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The accident and spill led to hundreds of lawsuits against London-based BP and its partners and contractors, including claims brought by Alabama and Louisiana alleging state law violations.

Most of the defendants argued that the federal Clean Water Act and Outer Continental Shelf Act trumped all claims under state law and that the Oil Pollution Act displaced maritime law claims as well, the judge said in his order.

“We will look at this and decide if we wish to comment,” Scott Dean, BP spokesman, said in an e-mail.

Louisiana Attorney General Buddy Caldwell and Alabama Attorney General Luther Strange didn’t return calls seeking comment on the ruling.

“The states allege that the oil spill caused a variety of past, present, and future damages, including damage to natural resources and property, economic losses (including lost revenues, such as taxes), costs associated with responding to the oil spill and performing removal actions, costs associated with providing increased or additional public services, and the long-term reputation damage or ‘stigma’ associated with the oil spill,” Barbier said.

The states are likely to recover all their removal costs under OPA, Barbier said yesterday.

“If OPA’s liability cap does not apply, then the states may recover all OPA damages as well,” he said. BP has waived the $75 million damage cap under the Oil Pollution Act, he noted.

The case is In Re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

Trials/Appeals

Obama’s Health-Care Law Gets Review by U.S. Supreme Court

The U.S. Supreme Court agreed to review the constitutionality of President Barack Obama’s health-care overhaul in a clash that will shape the 2012 election and spell out the extent of the federal government’s power.

The justices yesterday said they will consider whether Congress exceeded its authority by requiring all Americans to either acquire insurance by 2014 or pay a penalty. The court will hear arguments in March.

The court will wield unprecedented influence over the presidential campaign, with a decision in the case likely in late June, months before the election. The eventual ruling may define Chief Justice John Roberts’s court, either as an aggressive enforcer of the constitutional constraints on Congress or as a nonpolitical body inclined to defer to the elected branches on policy questions.

The dispute turns on Congress’s constitutional power to regulate interstate commerce. Opponents of the law, including a group of 26 states led by Florida, contend that Congress exceeded that authority by requiring people to buy insurance even if they say they want to pay their own health expenses or don’t plan to ever seek medical care.

“The act is without precedent both in its coercive impositions on the states and in its effort to force individuals to engage in commerce so that the federal government may regulate them,” the 26 states argued in a brief filed by former U.S. Solicitor General Paul Clement.

The commerce clause issue has divided federal appeals courts, with two upholding the law, a third declaring it unconstitutional and a fourth saying that a definitive ruling would be premature.

The Obama administration argues that uninsured people inevitably need medical care -- and shift billions of dollars in costs onto other participants in the system.

The administration also says the so-called individual mandate will help keep premiums low, offsetting other provisions that require insurers to offer coverage to sick people at the same rates as other customers.

“It is an integral part of a comprehensive regulatory scheme that the commerce power plainly authorizes Congress to enact,” argued U.S. Solicitor General Donald Verrilli, the administration’s top Supreme Court advocate.

The cases the court will hear are National Federation of Independent Business v. Sebelius, 11-393; Department of Health and Human Services v. Florida, 11-398; and Florida v. Department of Health and Human Services, 11-400.

For more, click here.

Deutsche Bank’s Ackermann Probed Over Kirch Case Testimony

Deutsche Bank AG Chief Executive Officer Josef Ackermann’s testimony in a civil lawsuit about the 2002 demise of the late Leo Kirch’s media group is being investigated by prosecutors.

Along with Ackermann, former Deutsche Bank CEO Rolf Breuer and other officials who testified are being investigated, bank spokesman Detlev Rahmsdorf said in an interview. Munich prosecutors searched Deutsche Bank offices as part of the case. The lender separately filed a motion to have the three judges in the 2 billion-euro ($2.7 billion) civil case removed because of “possible illicit cooperation” with prosecutors, he said.

The bank “immediately filed to have the bench removed” when it learned of the issue last week, Rahmsdorf said yesterday. He called the criminal probe “baseless.”

After the probe was reported yesterday, Deutsche Bank said Ackermann, 63, withdrew as a candidate for chairman. The lender said in a statement that Ackermann wouldn’t run when he steps down as CEO in 2012 because Europe’s debt crisis demands too much of his time.

Barbara Stockinger, a spokeswoman for Munich prosecutors, confirmed her office is probing bank managers in connection with a civil suit over allegations of attempted fraud. She declined to name any suspects. Bank offices as well as the home of one suspect were raided as part of the case last week, she said.

The civil case is: OLG Muenchen, 5 U 2472/09.

For more, click here.

For the latest trial and appeals news, click here.

New Suits

NFinanSe, Prepaid Debit-Card Issuer, Sues Its Distributor

NFinanSe Inc., an issuer of prepaid debit cards, sued its distributor and rival, Interactive Communications International Inc., claiming it blocked retailer access to cards, according to a copy of the complaint provided by nFinanSe.

NFinanSe, based in Tampa, Florida, accused Interactive Communications of blocking access to its cards as leverage to force a price-fixing agreement on it.

The suit was filed under seal Oct. 31 in federal court in Atlanta. An unsealed copy couldn’t immediately be obtained from the court or the filing verified.

Leah Gladu, a spokeswoman for Atlanta-based Interactive Communications, said the company declined to comment on the nFinanSe allegations.

Interactive allegedly conveyed to nFinanSe its intention not to fulfill its contractual obligations as distributor unless nFinanSe agreed to join Interactive’s “Vanilla Reload Network,” which would set a uniform $3.95 fee for consumers seeking to add money to their prepaid debit cards.

Interactive’s actions constitute an illegal restraint of trade and violate U.S. antitrust laws, nFinanSe claimed in the complaint.

For the latest new suits news, click here. For copies of recent civil complaints, click here.

Lawsuits/Pretrial

Madoff Trustee Picard Drops Appeal of Rakoff’s HSBC Ruling

The liquidator of Bernard Madoff’s firm yesterday dropped an appeal of a ruling that cut about $9 billion in damage claims from the amount he could seek from HSBC Holdings Plc and feeder funds.

U.S. District Judge Jed Rakoff in New York ruled in July that trustee Irving Picard has no right to sue on behalf of Madoff customers using common-law claims to allege HSBC owed them a duty and should have detected the fraud. The trustee, who has estimated that different aspects of the Rakoff ruling might cost Madoff investors as much as $11 billion in forfeited claims, filed a notice of appeal in August.

The trustee last week asked a different district judge to let him appeal her ruling that cut $19 billion in damages from his suit against JPMorgan Chase & Co.. He needs to establish finally whether his claims are viable, he told U.S. District Judge Colleen McMahon in a court filing in New York.

The rulings by McMahon and Rakoff knocked more than $28 billion off of Picard’s claims against banks. Rakoff also is handling Picard’s $59 billion suit against UniCredit Spa and Bank Medici AG founder Sonja Kohn.

Amanda Remus, a Picard spokeswoman, declined to comment on the dropped appeal. Picard has until Nov. 2, 2012, to reinstate the appeal in the HSBC case, according to a filing in the U.S. Court of Appeals in New York.

Madoff pleaded guilty and is serving a 150-year prison term. Picard and his firm have made about $224 million in fees since Madoff’s 2008 arrest.

The cases are Picard v. JPMorgan Chase & Co., 11-cv-913; Picard v. UBS Fund Services (Luxembourg) SA, 11-cv-4212, U.S. District Court, Southern District of New York (Manhattan).

Proskauer Rose Asks Judge to Dismiss Discrimination Suit

Proskauer Rose LLP asked a court to dismiss a lawsuit filed by Elly Rosenthal, its former chief financial officer, in which she alleged the law firm wrongly fired her after she took leave for treatment of breast cancer.

Rosenthal, of Colts Neck, New Jersey, sued Proskauer in New York State Supreme Court in Manhattan on Oct. 5, seeking $10 million in damages. Rosenthal served as CFO of the New York- based firm until September 2008, when she was demoted to chief administrative financial officer, according to her lawsuit. She was fired in March of this year.

Proskauer denied the allegations in documents it filed Nov. 9. The firm asked the court to dismiss the complaint and award attorneys’ fees and legal expenses as well as costs to defend the accusations.

The case is Rosenthal v. Proskauer Rose LLP, 111343/2011, New York State Supreme Court (Manhattan).

For more, click here.

Ex-UBS Wealth CEO Fighting FSA Fine Over Unauthorized Trades

John Pottage, the former chief executive officer of UBS AG’s wealth-management unit in the U.K., is challenging Britain’s finance regulator over its intention to fine him 100,000 pounds ($159,000) for failing to prevent unauthorized trades at the division.

Pottage, who is now a senior executive at the bank’s headquarters in Zurich, worked to improve systems and controls in the wealth-management unit when he started as its CEO in September 2006 and doesn’t deserve a fine, his lawyer, Guy Philipps, said in court papers. Pottage is challenging the penalty at a London hearing that started yesterday.

The Financial Services Authority alleged that Pottage “should have acted ‘sooner than he did’ to instigate a much wider investigation into whether there might be other weaknesses in controls,” Philipps said. Pottage, who UBS moved to Zurich amid the FSA probe, “strongly denies that charge,” and “is supported in that denial by UBS, of which he remains a senior executive.”

The case is another instance of risk-management failures at the bank, several years before Kweku Adoboli, a former trader in UBS’s investment bank, was charged with causing the bank $2.3 billion in losses through unauthorized trading.

The allegations against Pottage relate to an FSA investigation where it fined the Swiss lender 8 million pounds in 2009, at the time the third-largest penalty levied by the regulator. The FSA found that UBS didn’t prevent its international wealth-management employees from making as many as 50 unauthorized trades a day with funds from at least 39 customer accounts.

For more, click here.

Wyser-Pratte ‘Strongly Denies’ Insider Trading Claims by EEM

Guy Wyser-Pratte “strongly denies” accusations of insider trading made against him by Francois Gontier, chief executive officer of French investment company Electricite et Eaux de Madagascar.

The New York-based investor didn’t use privileged information in making share purchases, as Gontier alleged in a complaint to French prosecutors, according to Wyser-Pratte’s Paris lawyer, Antoine Arebalo-Camus.

Wyser-Pratte “is perfectly serene,” said Arebalo-Camus, who hasn’t seen the original complaint, just a report yesterday in Investir magazine. “He strongly denies these allegations, which are silly and make no sense at all,” and is considering suing for defamation, the lawyer said in a phone interview.

Wyser-Pratte joined the EEM board in June and filed a complaint alleging misuse of corporate funds and improper accounting at the company. The report of the complaint comes a month before an EEM shareholder meeting which will consider a resolution to remove him from the board, according to an agenda released yesterday.

Gontier denied any allegations related to the timing of the complaint ahead of the meeting, he said in a phone interview yesterday. Separately, EEM said the complaint was prompted by new information and that Wyser-Pratte has been working with other shareholders to pressure EEM management.

Wyser-Pratte owns a 13 percent stake in EEM directly and controls 24.6 percent of the voting rights in an accord with other shareholders.

For more, click here.

For the latest lawsuits news, click here.

Verdicts/Settlements

Merck Agrees to Settle New York, Florida Vioxx Claims

Merck & Co, which paid $4.85 billion to resolve patient lawsuits contending its Vioxx painkiller caused heart attacks, settled claims by New York and Florida alleging the company misled state officials about the drug’s safety, a court filing showed.

Merck agreed to pay an undisclosed sum to the states of Florida, New York and South Carolina to resolve suits alleging the drugmaker failed to adequately warn patients of Vioxx’s risks before halting sales in 2004, Russ Herman, a lawyer for former users of the drug, said in the Nov. 10 filing.

“Payments from Merck to these governmental entities may be imminent,” Herman said in a request to U.S. District Judge Eldon Fallon in New Orleans to set aside some of the settlement funds for legal fees.

Officials of Merck, based in Whitehouse Station, New Jersey, pulled Vioxx off the market in 2004 after researchers linked it to an increased risk of heart attacks and strokes. Former users also criticized the company for downplaying the drug’s health risks and manipulating studies to help promote it.

Ron Rogers, a Merck spokesman, declined in an e-mail yesterday to comment on the settlements. Danny Kanner, a spokesman for New York Attorney General Eric Schneiderman, also declined in an e-mail to comment on his state’s Vioxx accord.

Jennifer Meale, a spokeswoman for Florida Attorney General Pam Bondi, and Mark Plowden, a spokesman for South Carolina Attorney General Alan Wilson, weren’t immediately available for comment on their states’ settlements.

The case is Vioxx Products Liability Litigation, 2:05- md-01657, U.S. District Court, Eastern District of Louisiana (New Orleans).

For more, click here.

Skowron Wasn’t Aware He Committed Crimes, Wife Tells Judge

Ex-FrontPoint Partners LLC hedge fund manager Joseph F. “Chip” Skowron’s wife asked a judge to sentence him leniently for insider trading, saying he didn’t realize he’d done anything wrong that could send him to prison.

Skowron, a physician from Greenwich, Connecticut, pleaded guilty in August to conspiring to commit securities fraud and obstructing a Securities and Exchange Commission investigation probe for trading on inside information about Human Genome Science Inc. and then lying to investigators. He’s scheduled to be sentenced Nov. 18.

The U.S. said Skowron obtained nonpublic information about hepatitis C drug trials from Dr. Yves Benhamou, an expert in hepatitis drugs and a former adviser for HGSI Human Genome Sciences. The tips enabled FrontPoint to avoid more than $30 million in losses, prosecutors said. Benhamou has also pleaded guilty.

“I’m trying to understand how he could risk so much,” wrote Cheryl Skowron in an Oct. 1 letter to U.S. District Judge Denise Cote, who is presiding over the case. “He says he had no idea prison was a possibility otherwise he never would’ve done it. I believe him and yet here we are.”

In court papers filed yesterday, assistant U.S. attorneys Pablo Quinones and Reed Brodsky dispute claims that Skowron didn’t realize his actions were criminal.

Prosecutors said that Skowron, who has medical degree from Yale School of Medicine and was a portfolio manager at a multibillion-dollar fund, corrupted Benhamou for illegal tips, then lied to the SEC about his actions and later persuaded Benhamou to also lie to regulators.

James Bejamin Jr., Skowron’s lawyer, declined to comment on the government’s sentencing memo.

Cheryl Skowron’s letter was one of 37 submitted to the judge seeking mercy and leniency for Skowron, prosecutors said.

The case is U.S. v. Skowron, 11-cr-699, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Merrill Lynch Wins Appeal of Auction-Rate Securities Case

Bank of America Corp.’s Merrill Lynch unit won an appeal of a ruling dismissing an investor suit over auction-rate securities.

A federal appeals court in New York ruled yesterday that Merrill Lynch provided the investor, Colin Wilson, with sufficient information about its practice of propping up auctions in the securities by submitting its own bids, barring his claim that Merrill misled investors about the securities’ liquidity. Wilson had appealed a lower court’s dismissal of the suit.

“Merrill’s particular disclosures sufficiently alerted investors in Merrill ARS of the likelihood that the interest rates and apparent liquidity of these ARS reflected Merrill’s own intervention in these auctions rather than the natural interplay of supply and demand,” U.S. Circuit Judge Robert Katzmann wrote on behalf of a three-judge panel.

Wilson, who sought to represent a class of investors in Merrill’s auction-rate securities, bought $125,000 of the securities from an online brokerage in 2007. In 2008, Merrill and the other major dealers in auction-rate securities withdrew their support for the auctions, causing most of them to fail. Wilson claimed he and other investors were left with securities they couldn’t sell.

Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically re-set through an auction.

Bill Halldin, a spokesman for Charlotte, North Carolina- based Bank of America, said in an e-mail that the company is pleased with the court’s decision. Bank of America bought Merrill in 2009.

The case is Wilson v. Merrill Lynch & Co., 10-1528, Second U.S. Circuit Court of Appeals (New York).

For the latest verdict and settlement news, click here.

--With assistance from Bob Van Voris, Patricia Hurtado, Linda Sandler and Chris Dolmetsch in New York; Greg Stohr in Washington; Heather Smith in Paris; Lindsay Fortado and Ben Moshinsky in London; Andrew Harris in Chicago; Margaret Cronin Fisk in Detroit; Allen Johnson Jr. in New Orleans; Jef Feeley in Wilmington, Delaware; Allen Johnson Jr. in New Orleans; and Karin Matussek in Berlin. Editor: Mary Romano

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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