(Adds TCW in Verdicts section, JPMorgan in New Suits, Citigroup in Lawsuits and Surveillance Law in Trials. Updates HP in Lawsuits.)
Dec. 30 (Bloomberg) -- TCW Group Inc. and Jeffrey Gundlach, its former chief investment officer, said they settled a lawsuit over Gundlach’s firing in 2009 and allegations he stole trade secrets to set up his own firm.
TCW and the company founded by Gundlach, DoubleLine Capital LP, “jointly announce that they have settled all claims between and among themselves as well as DoubleLine Funds Trust, Jeffrey Gundlach, and other individuals,” TCW said yesterday in a statement. “The terms of the settlement are confidential and the parties will not discuss them.” DoubleLine separately issued a statement confirming the agreement.
TCW, the Los Angeles-based unit of Societe Generale SA, sued Gundlach in January 2010 after more than half of its fixed- income professionals joined DoubleLine. TCW said at trial that it suffered $566 million in damages. In September, a jury awarded Gundlach and three other former TCW employees who had joined his firm $66.7 million in unpaid wages.
The Los Angeles jury also found that Gundlach had breached his fiduciary duty to TCW, without awarding the firm any damages. California Superior Court Judge Carl West was to decide what “reasonable royalties,” if any, TCW was entitled to based on the jury’s finding that Gundlach had misappropriated trade secrets.
Gundlach, 52, who had worked at TCW for 25 years and was named Morningstar’s Fixed Income Manager of the Year in 2006, countersued, saying TCW fired him to avoid having to pay management and performance fees for the distressed-asset funds his group managed and that went “through the roof.” Gundlach sought about $500 million.
“We’re pleased that an agreement has been reached and that matter is now behind us,” Peter Viles, a TCW spokesman, said. “TCW is well positioned to continue the strong momentum and growth it has established over the past two years.”
The case is Trust Co. of the West v. Gundlach, BC429385, California Superior Court, Los Angeles County (Los Angeles).
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Deutsche Telekom, Magyar Unit Settle Bribery Case With U.S.
Deutsche Telekom AG, Europe’s biggest phone company, and its Magyar Telekom unit will pay $95 million to settle allegations they violated the Foreign Corrupt Practices Act.
Magyar Telekom, based in Budapest, will disgorge $31.2 million and pay a $59.6 million criminal penalty as part of a deferred prosecution agreement with the U.S. Justice Department, according to a statement yesterday by the U.S. Securities and Exchange Commission. The Bonn-based parent company will pay $4.36 million as part of a DOJ non-prosecution agreement, the SEC said. Both companies settled a civil suit filed yesterday with the SEC.
“Magyar Telekom’s senior executives used sham contracts to funnel millions of dollars in corrupt payments to foreign officials who could help them keep competitors out and win business,” Kara Novaco Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit, said in the release.
The SEC filed separate lawsuits in federal court in Manhattan against the companies and three former executives of Magyar Telekom. The defendants are former Chief Executive Officer Elek Straub, former Director of Central Strategic Organization Andras Balogh and former Director of Business Development and Acquisitions in the Central Strategic Organization Tamas Morvai.
“Deutsche Telekom has not been accused of violating the ban on bribery,” the company said in an e-mailed statement forwarded by spokeswoman Elpida Trizi. “The settlement terminates the investigations against Deutsche Telekom without a criminal charge.”
“The final settlements recognize the DOJ’s and the SEC’s consideration of the company’s self-reporting, thorough internal investigation, remediation and cooperation with the DOJ’s and the SEC’s investigations,” Magyar Telekom said in a statement.
Lawyers for the three former executives couldn’t immediately be reached for comment about the lawsuit. All three are Hungarian citizens believed to be residing in that country, according to the complaint.
The cases are U.S. Securities and Exchange Commission v. Magyar Telekom Plc, 11-cv-9646, and U.S. Securities and Exchange Commission v. Straub, 11-cv-9645, U.S. District Court, Southern District of New York (Manhattan).
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‘Ghost Rider’ Belongs to Marvel, Not Creator, U.S. Judge Says
Walt Disney Co.’s Marvel Entertainment won a second challenge over the ownership of its comic book characters, with a New York judge dismissing claims from the creator of “Ghost Rider” of copyright infringement.
U.S. District Judge Katherine Forrest in Manhattan ruled Dec. 28 that Gary Friedrich, who conceived and wrote the 1972 story of the motorcycle-riding character with a blazing skull for a head, signed over all rights to the character to Marvel in 1971 and again in 1978.
“Either of those contractual transfers would be sufficient to resolve the question of ownership,” Forrest wrote. “Together, they provide redundancy to the answer that leaves no doubt as to its correctness.”
Copyright challenges to Marvel characters from their creators have threatened to undermine Marvel’s movie projects based on those creations. “Ghost Rider,” a 2007 film starring Nicolas Cage, grossed $115.8 million in the U.S. and Canada, according to researcher Box Office Mojo. A sequel is scheduled to be released next year.
In July, U.S. District Judge Colleen McMahon in Manhattan dismissed an ownership claim to the Incredible Hulk and X-Men by the heirs of Jack Kirby, the superheroes’ co-creator.
Kirby, who died in 1994, also created or co-created the Fantastic Four and the Avengers. His heirs said their father was a freelance artist paid by the page who received no benefits from Marvel. Stan Lee, who worked for Marvel as an editor, is credited as co-author of the Hulk.
McMahon said Kirby’s creations were works-for-hire and as such belonged to Marvel.
Forrest, in her ruling, said she didn’t need to determine whether the Ghost Rider was a work-for-hire because it was clear Friedrich granted Marvel the rights to the character in his contracts.
The case is Gary Friedrich Enterprises v. Marvel Enterprises, 08-cv-01533, U.S. District Court, Southern District of New York (Manhattan).
California Barred by Judge From Cutting Hospital Medi-Cal Rates
California can’t cut reimbursements hospitals receive for the skilled-nursing services they provide to low-income people, a federal judge ruled.
U.S. District Judge Christina Snyder in Los Angeles granted Dec. 28 the request from the California Hospital Association for an order to stop California from imposing the reductions, saying the hospitals had met their burden of showing irreparable harm if she didn’t halt the cuts temporarily.
“The state’s fiscal crisis does not outweigh the serious irreparable injury the plaintiffs would suffer absent the issuance of an injunction,” the judge said in her ruling.
The hospital group said in a Nov. 1 complaint that the cuts of more than 20 percent would resurrect previous reductions that the courts have found to be in violation of the federal Medicaid Act. The reductions would threaten the ability of many hospitals to operate skilled nursing units, the group said.
The California Department of Health Care Services said Oct. 27 that the federal Centers for Medicare and Medicaid Services approved the state’s proposal to reduce Medi-Cal reimbursement rates. The cuts are part of state’s 2011-12 budget and would save $623 million, according to the Oct. 27 statement.
Norman Williams, a spokesman for the state’s Health Care Services Department, said Dec. 28 in an e-mail that the state “strongly disagrees with the ruling” and will appeal it.
The case is California Hospital Association v. Douglas, 11-09078, U.S. District Court, Central District of California (Los Angeles).
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JPMorgan, Ally Sued by HSH Nordbank Over Mortgage Bond Losses
JPMorgan Chase & Co., the biggest U.S. bank by assets, and Ally Financial Inc. were among the financial institutions blamed by the German lender HSH Nordbank AG in lawsuits over losses on about $293 million in mortgage bonds.
Offering documents for the securities contained “material misrepresentations and omissions” about the loans backing the securities, HSH Nordbank said in summonses filed yesterday in New York State Supreme Court.
Wrongdoing by JPMorgan, Ally and other defendants named in three separate cases “led directly” to losses on the securities, HSH Nordbank said. Barclays Capital Inc. and Credit Suisse Securities (USA) were also among those sued for their roles in different offerings, according to court papers.
HSH Nordbank also claims that offering materials contained misrepresentations about the legal validity of assignments of loans to mortgage-securitization trusts and the rights of the trusts to receive interest and principal payments on the loans, which are used to pay investors.
In one case, HSH Nordbank, based in Hamburg, is suing over $130 million in mortgage securities. Another covers about $117 million in bonds, and a third concerns $46 million, according to court papers.
Gina Proia, a spokeswoman for Detroit-based Ally, declined to immediately comment on the lawsuit. Steven Vames, a Credit Suisse spokesman, declined to comment. Representatives for Barclays and JPMorgan didn’t respond yesterday to e-mails seeking comment.
The case is HSH Nordbank AG v. Ally Financial, 653651-2011, New York State Supreme Court (Manhattan).
Elevator Firm in Fatal N.Y. Accident Sued Over Plaza Injury
Transel Elevator Inc., which two weeks ago was servicing an elevator hours before it killed a Manhattan advertising firm employee, was sued this week over an accident at New York’s Plaza hotel, the latest in a series of similar suits filed against the company.
Cecilia Xirouhakis, a Plaza housekeeper, was injured when a freight elevator she was in last year rapidly descended and came to “a sudden and violent stop,” according to a complaint filed Dec. 27 in New York State Supreme Court in Manhattan. Her lawyers said in the filing that Transel maintained and repaired the freight elevators at the Plaza.
On Dec. 14, New York-based Transel performed electrical maintenance on an elevator at 285 Madison Avenue. Later that day, it malfunctioned and killed Suzanne Hart, according to the New York City Buildings Department. Hart, 41, had stepped on to the elevator in the lobby en route to her office at Y&R, the Manhattan-based advertising agency formerly known as Young & Rubicam. The car shot up, pinning her between the elevator and the wall, police said.
An investigation into the accident by the New York City Department of Buildings is continuing, Tony Sclafani, a spokesman for the department, said. The department is also inspecting elevators in the city serviced by Transel, Sclafani said.
This week’s lawsuit by Xirouhakis is one of several elevator-injury claims filed in New York during the past few years against Transel. The company specializes in construction, repair and maintenance of residential and commercial elevator systems, according to its website.
A spokesman for Transel didn’t return a call seeking comment on the lawsuits. Transel and other defendants in the Plaza lawsuit have yet to file answers to the complaint in that case.
Daniel Friedman, an attorney at the law firm representing Xirouhakis, a New Jersey resident, said the sudden stop of the Plaza’s freight elevator was so severe she fractured bones in one of her feet.
The case is Cecilia Xirouhakis v. El-Ad Properties NY LLC, 11-114486, New York State Supreme Court (Manhattan).
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SK Holdings Vice Chairman Chey Arrested in Embezzlement Case
SK Holdings Co. Vice Chairman Chey Jae Won, the second- ranking executive at South Korea’s third-largest industrial group, was arrested yesterday on suspicion he embezzled money from company affiliates.
The Seoul Central District Court issued an arrest warrant as there was a risk Chey would destroy evidence, Cho Won Kyung, a judge and spokeswoman at the court, said by phone. Chey’s arrest was also broadcast on local television. SK declined to comment in an e-mailed response to Bloomberg News.
Chey, 48, the second son of SK Group founder Chey Jong Hyon, is accused of misappropriating 100 billion won ($87 million) from SK affiliates to make up for futures investment losses incurred by his elder brother and SK Holdings Chairman Chey Tae Won, Yonhap reported. The elder Chey was also summoned by prosecutors on Dec. 19.
The chairman hasn’t used any company money inappropriately and will prove his innocence, the group said in an e-mailed response to questions from Bloomberg on Nov. 8. The government of President Lee Myung Bak pardoned Chey Tae Won in 2008 of a fraud conviction that had earned him a suspended three-year prison term.
“If this is finished at the vice-chairman level, Chairman Chey can stay in management, which means ongoing M&As and businesses will not be affected much,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion.
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Former HP CEO Hurd Tried to Cajole Fisher Into Sex, Letter Says
Former Hewlett-Packard Co. Chief Executive Officer Mark Hurd tried to persuade Jodie Fisher to have sex and kissed and touched her inappropriately while she was a company events contractor, according to a much-contested letter that was ordered to be released by a court yesterday.
During dinners, hotel-room visits and other meetings in cities such as Los Angeles, Atlanta, St. Louis and Madrid between 2007 and 2009, Hurd kissed and embraced Fisher, brushed his hand against her breast and attempted to initiate an affair, according to the letter sent to Hurd on June 24, 2010, by Fisher’s lawyer, Gloria Allred. Hurd, who is now a president at Oracle Corp., wasn’t found to have committed sexual harassment by Hewlett-Packard, and Fisher herself later said the document contained inaccuracies.
“You had designs to make her your lover from the onset using your status and authority as CEO of HP,” Allred said in the letter to Hurd, the contents of which were first reported by Bloomberg News. “At times you would behave professionally seemingly ‘getting’ that she was not going to have sex with you. At other times, not, and you would relentlessly attempt to cajole her into having sex with you.”
The letter, which sought a settlement for sexual harassment, was obtained after a ruling by the Delaware Supreme Court that it should be unsealed as part of the evidence in a shareholder lawsuit against the Palo Alto, California-based company. Hurd’s relationship with Fisher led to his resignation as CEO on Aug. 6, 2010, after a company investigation found he had violated its standards of business conduct. Hurd settled with Fisher the week he resigned.
Allred and Michael Thacker, a Hewlett-Packard spokesman, declined to comment.
In settling with Hurd last year, Fisher and Allred said there was no romantic or sexual affair between the two. Hewlett- Packard’s investigation found that he didn’t violate the sexual- harassment policy.
Fisher told Hurd in a 2010 letter, also obtained by Bloomberg News, that the Allred document had “many inaccuracies in the details” and that the CEO’s behavior didn’t hurt Hewlett-Packard or its reputation.
The Allred “letter was recanted by Ms. Fisher,” said Ken Glueck, a senior vice president for Redwood City, California- based Oracle. “She admitted it was full of inaccuracies.”
Hewlett-Packard shareholder Ernesto Espinoza sought the letter, along with company books and records, in a suit aimed at investigating possible corporate wrongdoing in conjunction with the payment of Hurd’s severance package of as much as $40 million, according to court papers.
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Rakoff Orders SEC, Citigroup to Alert Him of Appeals Filings
Citigroup Inc. and the U.S. Securities and Exchange Commission must notify U.S. District Judge Jed Rakoff of any filings they make with the appeals court in Manhattan in a lawsuit between the parties, he said.
Rakoff issued an order yesterday in which he laid out the history of the litigation since his refusal last month to approve an accord resolving claims that New York-based Citigroup misled investors in a $1 billion financial product linked to risky mortgages. The parties didn’t allow him time to rule on a request to halt the litigation during an appeal of that order, he said. They went to the appeals court and obtained a stay before he issued his own decision Dec. 27.
“The parties are hereby ordered to promptly notify this court of any filings in the Court of Appeals by faxing copies of any such filings to this court immediately after they are filed in the Court of Appeals,” Rakoff wrote.
Because of the federal appeals court’s ruling, the suit will remain on hold while the higher court considers whether to review Rakoff’s rejection of a $285 million settlement in the case. The appeals court agreed to the SEC’s request to delay the case until at least Jan. 17. The agency said halting the case was necessary because Rakoff told Citigroup to respond to the SEC’s complaint next week.
The court said the SEC’s request to stay the case in the lower court and to expedite the appeal will be submitted to a motions panel of the court Jan. 17. The case will be kept on hold until the panel decides whether to grant the requests, the court said in a two-sentence order.
Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment on Rakoff’s order. John Nester, an SEC spokesman, said in an e-mailed statement that “we will respond as appropriate in the proceedings before the court of appeals.”
Rakoff said yesterday that his Dec. 27 order denying a request from the SEC that he halt the case during the appeal was issued one minute after the Court of Appeals granted the SEC’s request.
He said the SEC filed its emergency motion with the appeals court without notifying him and without telling the higher court that his decision was imminent.
By not telling him of the emergency motion, Citigroup and the SEC “held back from this court material information it needed to do its job,” Rakoff said.
He said one reason for his order yesterday was to apprise the appeals court of what had transpired “and to attempt to prevent similar recurrences.”
The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-05227, U.S. Court of Appeals for the Second Circuit (New York). The district court case is 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).
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Zell Company Seeks to Intervene in Lehman’s Archstone Case
An affiliate of Sam Zell’s Equity Residential told a judge it urgently needed to intervene in court proceedings over Lehman Brothers Holdings Inc.’s Archstone to protect its right to buy half of a stake in the real estate company held by Bank of America Corp. and Barclays Plc.
The Equity Residential affiliate this month got a 30-day right to set the price for the second 26.5 percent of the banks’ stake, according to a court filing yesterday in New York. Lehman said in a lawsuit it is entitled to take over that right without compensating the Zell company, the Equity Residential affiliate, ERP, said in the filing.
“ERP seeks to intervene in this action to protect contractual rights it holds that are directly threatened by the relief Lehman is seeking,” it said.
ERP said it is entitled to a so-called breakup free if Lehman buys the bank’s whole 53 percent stake.
Bankrupt Lehman told the banks it would buy the first half of their Archstone stake for about $1.3 billion, exercising a right to do so after Zell made an offer for that piece of their stake. That left Zell with an option on the second piece of the banks’ stake.
Lehman also sued the banks for breach of contract, saying they colluded to sell a stake to Zell’s company, Archstone’s “largest competitor,” and failed to inform Lehman about all the terms of the deal. Lehman currently owns 47 percent of Archstone.
U.S. Bankruptcy Judge James Peck scheduled hearings on the dispute for January.
Archstone, which Lehman acquired in a $22 billion leveraged buyout with Tishman Speyer Properties LP, has ownership interests in hundreds of apartment developments from Washington and New York to San Francisco.
Lehman is seeking to sell Archstone, its biggest real- estate asset, for $6 billion to help pay creditors with claims of about $370 billion, and to do that must gain control of the company, according to a person familiar with the plan.
Kimberly Macleod, a Lehman spokeswoman, declined to comment on yesterday’s filing.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The complaint is Archstone LB Syndication Partner LLC v. Banc of America Strategic Venture Inc. (In re Lehman Brothers Holdings Inc.), 11-02928, U.S. Bankruptcy Court, Southern District New York (Manhattan).
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Surveillance Law Upheld While Lawsuits Allowed to Proceed
The U.S. government’s decision to shield telecommunications companies from lawsuits alleging an anti-terrorism surveillance program violated consumers’ privacy rights was upheld by a federal appeals court.
The U.S. Court of Appeals in San Francisco ruled yesterday that an amendment to the Foreign Intelligence Surveillance Act, or FISA, granting immunity from lawsuits to AT&T Inc. and other companies doesn’t violate constitutional due process rights of citizens who sued carriers whom they alleged assisted the government in illegal wiretapping.
While they can’t sue telephone companies, phone customers can proceed with lawsuits against the government over the warrantless surveillance program, the court said, reversing a federal judge who dismissed lawsuits challenging what the plaintiffs allege is a “communications dragnet of ordinary American citizens.” The lower-court judge had ruled that the alleged spying wasn’t shown to be sufficiently linked to the plaintiffs.
The appeals court disagreed, ruling that the phone customers’ “allegations are highly specific and lay out concrete harms arising from the warrantless searches.”
More than 40 lawsuits seeking billions of dollars in damages were filed in 2006 against phone companies alleging they helped the government wiretap suspected terrorists without court approval. Congress passed a measure in 2008 granting phone companies immunity from the lawsuits if the U.S. Attorney General certified that they assisted the government pursuant to a special court order or other criteria.
Other lawsuits by telephone customers targeted the government rather than the telecommunications companies. The appeals court sent those cases back to district court with instructions to consider whether they are barred because they could reveal “state secrets” and damage national security.
The first case is Hepting v. AT&T, 07-17132, U.S. Court of Appeals for the Ninth Circuit (San Francisco). The second case is Jewel v. National Security Agency, 10-15616, U.S. Court of Appeals for the Ninth Circuit.
Celestica Shareholder Lawsuit Reinstated by Appeals Court
Celestica Inc., a Canadian electronics manufacturer, must face shareholder claims that it misled them about the costs of a corporate restructuring, a U.S. appeals court ruled.
The U.S. Court of Appeals in New York yesterday reversed a lower-court’s dismissal of the fraud lawsuit. Celestica investors, represented by a group of union pension funds, sued the company and its former chief executive officer, Stephen Delaney, and former chief financial officer, Anthony Puppi, in 2007.
The three-judge appeals court panel ruled that the shareholders alleged sufficient facts to support the defendants’ scienter, or knowledge that they knew they were misstating Celestica’s earnings and financial prospects.
“The particular allegations that Delaney and Puppi were specifically informed, and had reason to know, of the growing inventory stockpile in Celestica’s Mexican and American facilities are sufficient to establish the individual defendants’ scienter,” the panel said in the ruling. “Moreover, those allegations are sufficient to establish corporate scienter on behalf of Celestica.”
Celestica representatives didn’t immediately return a voice-mail message to its media contact line seeking comment on yesterday’s ruling.
The case is New Orleans Employees Retirement System v. Celestica Inc., 10-4702, U.S. Court of Appeals for the Second Circuit (Manhattan).
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--With assistance from Bob Van Voris, David McLaughlin, Linda Sandler and Thom Weidlich in New York; Phil Milford and Sophia Pearson in Wilmington, Delaware; Joe Schneider in Sydney; Shinhye Kang and Sungwoo Park in Seoul; Karen Gullo and Aaron Ricadela in San Francisco; and Edvard Pettersson in Los Angeles. Editor: Stephen Farr
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