Bloomberg News

BP, Bayer, Deutsche Bank, JPMorgan, HSBC in Court News

December 07, 2011

(Updates Ernst & Young in New Suits section. Adds BP in top section, Yahoo in New Suits, Bayer in Lawsuits and NYSE Euronext in Verdicts.)

Dec. 6 (Bloomberg) -- BP Plc accused a unit of Halliburton Co. of intentionally destroying evidence that could be used to prove the oilfield services firm shares blame for the blowout that caused the 2010 Gulf of Mexico oil spill.

Halliburton Energy Services Inc. destroyed test results that showed samples of the cement used to seal London-based BP’s Macondo well, which exploded off the Louisiana coast last year, were unstable, BP said in a filing yesterday in federal court in New Orleans.

The oilfield services provider also suppressed computer models that might prove Halliburton was at fault “because it wanted to eliminate any risk that this evidence would be used against it at trial,” BP said in the filing.

BP asked the court to find that Halliburton destroyed evidence on purpose and to compel the company to turn over for third-party examination the computer used for the modeling.

“Halliburton is reviewing the details of the motion filed today,” Beverly Stafford, a Halliburton spokeswoman, said in an e-mail. “However, we believe that the conclusion that BP is asking the court to draw is without merit, and we look forward to contesting their motion in court.”

BP and Halliburton are suing each other over which company’s actions and decisions caused the blowout, which killed 11 workers and sparked the worst offshore oil spill in U.S. history. The two companies face more than 350 lawsuits by coastal property owners and businesses claiming billions in damages from the spill.

Halliburton has raised two primary defenses against allegations it shares blame for the blowout, BP said in the filing. First, the contractor maintains its foaming cement formula was stable and performed as designed, BP said. Second, Halliburton claims BP chose to use too few “centralizers” to keep the pipe aligned in the well, which allowed hydrocarbons to escape through channels that formed in the cement liner, BP said.

BP said Halliburton witnesses and documents uncovered in pretrial proceedings undercut both defenses.

Rickey Morgan, a Halliburton employee who conducted post- incident testing on Macondo cement slurry samples at the company’s lab in Duncan, Oklahoma, “testified under oath that he destroyed test results in order to keep the information from being ‘misinterpreted’ in ways adverse to Halliburton in litigation,” BP said in yesterday’s filing.

BP also asked Barbier to consider levying sanctions against Halliburton, such as barring the company from using certain evidence or defenses at trial or even dismissing its claims against BP.

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).

For more, click here.

New Suits

Yahoo Sued by Shareholders Seeking to Maximize Sale Value

Yahoo! Inc., the Internet company exploring strategic options, was sued by investors who contend the board is shirking its duties to seek the best possible price for the company if it’s sold.

The Sunnyvale, California-based company has instituted bidding rules that discourage acquisitions that would lead to replacement of the directors including co-founder Jerry Yang, M&C Partners III contends in a Dec. 1 lawsuit filed in Delaware Chancery Court in Wilmington.

Yahoo “has adopted a confidentiality agreement” for bidders, prohibiting them from talking with other bidders and to “confine themselves to a bid for only a minority stake,” M&C lawyers said in court papers.

Alibaba Group Holding Ltd. and Softbank Corp. are in advanced talks with Blackstone Group LP and Bain Capital LLC about making a bid for all of Yahoo, three people with knowledge of the matter have told Bloomberg News.

In the lawsuit, M&C claims the so-called no cross-talk provision “constitutes an unreasonable anti-takeover device” and “tilts the playing field” in favor of Yang, who wants to keep “a disproportionate influence” over company affairs.

The lawsuit was assigned to Judge Sam Glascock III, who will have to decide whether to grant M&C’s request to invalidate the “minority stake promise” as “unlawful and unenforceable,” according to court papers.

“We aren’t commenting,” said Dana Lengkeek, a Yahoo spokeswoman, in an e-mail message.

The case is M&C Partners III v. Jerry Yang and Yahoo! Inc., CA7082, Delaware Chancery Court (Wilmington).

Deutsche Bank Sued for Billions Over Fund’s Currency Losses

Deutsche Bank AG faces a claim that may be worth billions of dollars in a lawsuit with investment fund Sebastian Holdings Inc. over failed foreign exchange transactions.

Sebastian said in court papers in London that Germany’s largest bank allowed a trader to breach currency-trading limits between 2006 and 2008. Sebastian, owned and run by Norwegian investor Alexander Vik, said it suffered losses and missed out on profits worth about $2.5 billion when it had to meet margin calls and close out positions because of the dispute.

“This is about a margin call that was missed and remains unpaid,” Deutsche Bank said in an e-mailed statement. “We will defend vigorously against the other party’s claims which are without merit and date to 2008.”

Deutsche Bank is pursuing Sebastian in the U.K. courts for $245 million in unpaid margin calls from the period. Sebastian has filed a “substantial” counterclaim valued at several billion dollars, its lawyer, Tim Lord, said at a pretrial hearing in London on Nov. 21.

The dispute relates to “exotic derivatives” and the breakdown of prime brokerage services provided by Deutsche Bank, Lord said in November. Sebastian was seeking additional documents from Deutsche Bank’s Swiss unit ahead of a trial in London.

The unauthorized trades were carried out by Klaus Said, whom Vik authorized to work on behalf of Sebastian, the fund’s lawyers said in London filings. He was only permitted to deal in “plain vanilla” currency, within a strict limit of $35 million. Deutsche Bank was aware of these limits and shouldn’t have allowed Said to trade in derivatives, Sebastian says.

Said declined to comment when reached by phone at his home in Connecticut.

Sebastian, based in the Turks and Caicos, is also suing Deutsche Bank for $750 million in New York, alleging breach of fiduciary duty, unjust enrichment and negligent misrepresentation, according to court documents in the case.

As well as losses of $750 million from the foreign exchange trades, Sebastian estimates in the U.K. counterclaim that it has missed out on profits of about $700 million from having to close currency, gold and futures positions as well as losing a $1 billion capital fund it held with the bank.

Vik “trusted and relied upon” his private bankers at Deutsche Bank for management of Sebastian’s finances, according to the claim.

The case is Deutsche Bank AG v. Sebastian Holdings Inc, 09-83, High Court of Justice, Queen’s Bench Division, Commercial Court.

For more, click here.

Ernst & Young Sued by M-Invest for $900 Million Over Audits

Ernst & Young LLP was sued by M-Invest Ltd. for negligence, malpractice and breach of contract in connection with audits of financial statements over a five-year period.

The lawsuit seeks $900 million in damages from the New York-based accounting firm over audits of annual financial statements for the years 2003 to 2007 for M-Invest, which is in voluntary liquidation, according to papers filed Dec. 4 in New York State Supreme Court in Manhattan. The two-page filing didn’t provide any details of the allegations against Ernst & Young.

M-Invest Ltd. is the name of a company that was involved in a settlement agreement with Irving Picard, the trustee liquidating Bernard Madoff’s bankrupt investment firm.

Union Bancaire Privee, a private Swiss bank accused of profiting from Madoff’s Ponzi scheme, agreed to pay as much as $500 million in December 2010 to settle claims by Picard. The agreement released claims against Union Bancaire and M-Invest, a Cayman Islands corporation it set up to invest money with Madoff. Union Bancaire and M-Invest didn’t admit any liability in the settlement, according to the agreement.

“The suit has no merit and we will defend ourselves,” Ernst & Young said in a statement. Eric Seiler, an attorney representing M-Invest, didn’t return a phone message seeking comment on the suit.

The case is M-Invest Ltd. v. Ernst & Young LLP, 653353/2011, New York State Supreme Court (Manhattan).

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

Lawsuits/Pretrial

Bayer Withheld Yasmin Data From U.S., Former FDA Head Says

A Bayer AG unit’s researchers found increased reports of blood clots in users of its Yasmin birth-control pills and the company withheld the information from U.S. regulators, the former head of the Food and Drug Administration said.

David Kessler, the former FDA commissioner, in a document unsealed yesterday in federal court in Illinois, said Bayer didn’t include an analysis “that demonstrated an increase in the U.S. reporting rate” for venous thromboembolism, or clots, in a 2004 review of Yasmin’s safety provided to the agency.

The report also didn’t include an earlier draft opinion by company researchers that “spontaneous reporting data do signal a difference in the VTE rates for Yasmin” compared with other oral contraceptives, Kessler said, quoting the draft.

“Bayer presented a selective view of the data, and that presentation obscured the potential risks associated with Yasmin,” Kessler said. The company also promoted the oral contraceptive for unapproved uses, particularly for treatment of premenstrual syndrome, Kessler said.

Kessler’s report and four other expert opinions were released yesterday by lawyers representing former users of Bayer’s Yasmin family of contraceptives. The experts were paid by the plaintiffs’ lawyers, who submitted the reports to the FDA, which is considering safety findings on Yasmin and its sister product Yaz at a hearing Dec. 8.

Rose Talarico, a U.S.-based spokeswoman for Bayer, said the company doesn’t comment on ongoing lawsuits. “We have nothing further to add as these are matters of litigation,” she said in an e-mailed statement. “We expect them to be addressed further at trial.”

Morgan Liscinsky, an FDA spokeswoman, didn’t immediately comment on the unsealed documents about the drugmaker’s handling of the contraceptives.

The FDA didn’t accept the documents for the hearing, according to an e-mail sent to plaintiffs’ lawyer Ned McWilliams after business hours yesterday.

“The deadline for all written submissions was on November 23, 2011,” Kalyani Bhatt, of the FDA’s Division of Advisory Committee and Consultant Management, wrote. “We will not be able to accept any written submission at this time.”

Bayer faces more than 10,000 lawsuits over injuries allegedly caused by the contraceptives. Lawyers suing the drugmaker cited FDA reports of at least 50 deaths tied to the pills from 2004 to 2008. The first trials are scheduled for next month in federal court in Illinois and state court in Philadelphia.

The case is In re Yasmin and Yaz (Drospirenone) Marketing, Sales Practices and Product Liability Litigation, 09-md-02100, U.S. District Court, U.S. District Court, Southern District of Illinois (East St. Louis).

For more, click here.

Madoff Trustee Appeals $19 Billion JPMorgan Ruling

The liquidator of Bernard L. Madoff’s firm, who lost the right to demand $19 billion in damages from JPMorgan Chase & Co., appealed the ruling to a higher court.

JPMorgan last month won the dismissal of trustee Irving Picard’s damage claims in his lawsuit alleging the biggest U.S. bank aided Madoff’s fraud. Picard can’t sue for common-law damages on behalf of the defunct Madoff firm’s customers, U.S. District Judge Colleen McMahon ruled in New York.

The judge told Picard he could go ahead and appeal her ruling after getting JPMorgan’s consent to do so, according to court papers. Picard agreed to put his remaining claims against New York-based JPMorgan on hold while he appeals.

Rulings by district judges McMahon and Jed Rakoff have knocked more than $28 billion off of Picard’s claims against banks and may cost him as much as $11 billion in recoveries from other cases aimed at benefiting investors who lost money in the Ponzi scheme, according to the trustee’s estimates.

JPMorgan said it didn’t know about the fraud and couldn’t be held responsible for a scheme orchestrated by Madoff alone.

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 McMahon 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).

ANZ Customers Can Proceed With Fees Lawsuit, Judge Rules

Australia & New Zealand Banking Group Ltd. customers seeking to recoup fees they claim were illegal can proceed with part of the lawsuit after a judge ruled credit-card charges for late payments can be challenged in court.

Federal Court Justice Michelle Gordon issued the ruling in Melbourne yesterday, dismissing complaints about charges for insufficient funds in accounts or overdrawn bank accounts, ruling those didn’t amount to penalties.

ANZ is the first of 12 banks that IMF Australia Ltd., the country’s biggest litigation funder, planned to sue in a bid to recoup as much as A$5 billion ($5.1 billion) that Australian account holders paid in fees in the past six years, according to James Middleweek, managing director at IMF’s Financial Redress Pty unit. Customers holding almost 246,000 accounts have registered to sue, according to IMF’s website.

“This is the first important ruling in what will undoubtedly be a long, drawn-out process,” Middleweek said in a phone interview yesterday.

The credit card late-payment charges make up about 40 percent of the A$50 million in refunds for so-called exception fees sought by ANZ’s customers, Andrew Watson, a principal at Maurice Blackburn Lawyers, who is representing the plaintiffs, said in a phone interview.

ANZ, based in Melbourne, said it welcomed the ruling because it was largely vindicated by it.

The decision will “almost certainly” be appealed, Watson said. He said the High Court of Australia, the country’s top court, would probably have to decide whether the concept of penalties can be expanded to include those charges rejected by Gordon.

The case is Andrews v. ANZ Banking Group Ltd. VID811/2010. Federal Court of Australia (Melbourne).

For more, click here.

Australian Federal Court Lifts Freeze on Magnitogorsk Assets

Australia’s federal court lifted a freeze on OAO Magnitogorsk Iron & Steel’s assets in the country, including a stake in Fortescue Metals Group Ltd., after a dispute with Eurasian Natural Resources Corp. was resolved.

MMK, as Magnitogorsk is known, had a freeze imposed on Australian assets valued at as much as A$858 million ($877 million), according to a Nov. 25 order made in Sydney by Federal Court Justice Steven Rares. The figure included a 4.99 percent stake valued at about A$735 million in Perth-based Fortescue, Australia’s third-largest iron-ore exporter.

Judge Peter Jacobson yesterday ordered the freeze lifted and allowed MMK and Swiss trader ENRC Marketing AG, an ENRC unit, which had sought the freeze amidst a dispute over iron-ore shipments, to file a notice that the lawsuit is being discontinued, according to a posting on the Federal Court’s website.

MMK and ENRC said in a statement later they had “amicably” settled their dispute.

“ENRC and MMK continue to benefit from long-term partnership and we are pleased to retain MMK as one of our valued customers,” ENRC Chief Executive Officer Felix Vulis said.

The mutual waiver of claims confirmed the companies’ intention to “cooperate on a long-term basis,” MMK CEO Boris Dubrovsky said.

The case is between ENRC Marketing AG and OJSC “Magnitogorsk Metallurgical Kombinat.” NSD2110/2011. Federal Court of Australia (Sydney).

For the latest lawsuits news, click here.

Trials

Blood-Test Case at Top Court May Send Patent ‘Shock Waves’

Computer, drug and biotechnology companies have a message for the U.S. Supreme Court as it prepares for arguments this week on patents for diagnostic medical tests: Be careful.

Companies, trade groups and lawyers have filed more than two dozen legal briefs, many warning that the court’s ruling might have widespread, unintended ramifications. Each side in the case, which pits Nestle SA’s Prometheus unit against the Mayo Clinic, says a defeat might stifle innovation.

“The claims have to do with diagnostic methods, but it has the potential to touch industries we don’t know about,” said Erika Arner, a Washington lawyer who filed a brief asking the court not to restrict software and computer patents.

Because the court will consider the most fundamental question in patent law -- what can be patented -- the ruling “will or could have shock waves across all industries,” said Arner, who represents SAP America Inc., a business-software maker based in Newtown Square, Pennsylvania.

The case is the second at the Supreme Court since 2010 concerning what types of inventions are eligible for legal protection. The latest case, to be heard tomorrow, will test the longstanding principle that natural phenomenon can’t be patented. A lower court ruled that two patents now owned by Prometheus were potentially valid because they involve the application of a law of nature, not the law itself.

The patents cover a method for determining the proper dosage of thiopurine, a stomach medicine, based on the rate at which particular patients metabolize the drug. Doctors can use the method, which involves testing blood for metabolites, to maximize effectiveness and limit toxic side effects while treating Crohn’s disease and other inflammatory bowel illnesses.

Prometheus is suing two units of the Mayo Clinic, the not- for-profit medical practice based in Rochester, Minnesota. Mayo licensed the patents until 2004, when it created its own test.

Mayo contends the patents would give Prometheus a monopoly over all uses of the natural relationship between the metabolites created by thiopurine and the drug’s impact on the human body. The patents are so broad they would bar doctors familiar with the Prometheus method from even thinking about the connection between metabolite levels and the proper dosage for a patient, Mayo’s lawyers say.

The case is Mayo Collaborative Services v. Prometheus Laboratories, 10-1150.

For more, click here.

For the latest trial and appeals news, click here.

Verdicts/Settlements

Ex-NYSE Euronext Chief Wins Reversal of $11 Million Verdict

Former NYSE Euronext President Gerald D. Putnam won reversal of an $11 million jury verdict in a lawsuit accusing him and two other people of cheating a former business partner of money from the development of the electronic stock exchange Archipelago Holdings LLC.

An Illinois appellate panel on Dec. 2 threw out the jury’s 2009 award, ruling that Lewis Borsellino, a former business partner and commodities trader, previously agreed to release the defendants from liability in exchange for $250,000.

In 1998, Borsellino’s company sued companies controlled by Putnam and Stuart and MarrGwen Townsend, with whom he had formed Chicago Trading & Arbitrage LLC. After the case settled, he sued again, claiming he had been misled about whether CTA money was used to create Archipelago. Archipelago merged in 2006 with the New York Stock Exchange creating NYSE Group Inc., now part of New York-based NYSE Euronext.

“Borsellino not only retained payment under the release, but also does not seek to rescind the release,” Illinois Appellate Court Judge Robert E. Gordon wrote. “The release barred Borsellino’s claim and we must reverse the judgment of the trial court.”

Borsellino’s attorney, Jon Loevy of Chicago, said in a voice-mail message that the appellate ruling was a mistake of law that he expects will be rectified by the Illinois Supreme Court.

“Nothing in the court’s opinion disturbed the jury’s finding that the defendants committed fraud,” Loevy said.

A lawyer for Putnam and the Townsends, Michael Pollard, said by e-mail that he was confident the intermediate-level appellate court ruling will withstand any further review.

“The court’s decision vindicates our clients after a decade of litigation and reverses the outcome of a trial that should have never taken place,” Pollard said.

The case is Borsellino v. Putnam, 2011 IL App 102242, Illinois Appellate Court, First District, Sixth Division (Chicago).

HSBC Must Pay $62 Million Over Improper Sales to Elderly

HSBC Holdings Plc must pay 39.8 million pounds ($62.2 million), including a record fine, for telling elderly people to buy products to fund nursing-home costs that paid out after some of them were expected to die.

The bank was fined 10.5 million pounds, the largest-ever penalty in the U.K. over sales of financial products, the Financial Services Authority said in a statement yesterday. The lender estimated it would have to pay about 29.3 million pounds to compensate customers, the FSA said.

HSBC’s NHFA unit advised 2,485 customers with an average age of 83 to invest in asset-backed products to fund their long- term care. The investments typically were recommended for a minimum five-year period, which in some cases was longer than the customers’ life expectancies, causing them to make withdrawals sooner than recommended, the regulator said.

The HSBC unit made “unsuitable sales” to around 87 percent of its customers for these types of investments over a five-year period until 2010, the regulator said. The customers invested as much as 285 million pounds, an average of 115,000 pounds per customer.

HSBC Bank Plc Chief Executive Officer Brian Robertson said in a statement he is “profoundly sorry” that the NHFA “failed to give suitable financial advice to some of their customers.”

The bank reported the issue to the FSA and closed the unit to new business on July 1, Robertson said.

HSBC said it is reviewing the matter and will contact affected customers. The bank received the FSA’s standard 30 percent discount on the fine for settling early in the probe.

For more, click here.

Rajaratnam’s Trades May Run From Stamps to Mackerel Packets

Raj Rajaratnam leaves behind the ruins of a Wall Street career that made him a billionaire hedge fund manager to begin an 11-year prison sentence, the price for running a far-flung insider-trading conspiracy that turned tips from company executives and technology consultants into cash.

He will trade in suits for a uniform, a luxury Manhattan apartment for a cell, and credit cards and cash for postage stamps and mackerel packets, the black market currency of his new home. The millions of dollars he made on illegal trades will be replaced by manual labor that starts at 12 cents an hour.

Rajaratnam, 54, reported to Federal Medical Center Devens, located on a decommissioned military base in Ayer, Massachusetts, at about 12:30 p.m. yesterday, said Robert Lanza, a prison spokesman.

Rajaratnam will be fingerprinted, searched, interviewed and issued a prison identification card with his inmate number, 62785-054, said John Colautti, a spokesman for the Devens facility. He will only be permitted to keep his wedding ring, glasses and a few other approved items, he said.

Most inmates reporting to Devens for their initial prison assignment are sent to the Special Housing Unit, a high-security lockup where they stay for 23 hours a day, until their tuberculosis test results are processed, according to Colautti.

Rajaratnam, was sentenced in October after a federal jury in Manhattan found him guilty of 14 counts of securities fraud and conspiracy. He directed colleagues, consultants and corporate officers to leak information that made him tens of millions of dollars.

His was the longest sentence ever handed down for such a crime, and the culmination of a four-year nationwide probe of insider trading. Last week, a three-judge panel rejected his last-minute plea to remain free while he appeals his conviction.

The case is U.S. v. Rajaratnam, 09-01184, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

For the latest verdict and settlement news, click here.

--With assistance from Chris Dolmetsch, Linda Sandler, Bob Van Voris and Bill Rochelle in New York; Joe Schneider in Sydney; Lindsay Fortado and Kit Chellel in London; Laurel Brubaker Calkins in Houston; Margaret Cronin Fisk in Detroit; Jef Feeley and Phil Milford in Wilmington, Delaware; Andrew Harris in Chicago; and Greg Stohr and Susan Decker in Washington. Editors: Stephen Farr, 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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