Bloomberg News

BofA, News Corp., JPMorgan, Apple, Monsanto in Court News

February 28, 2012

Bank of America Corp. and a group of investors that reached an $8.5 billion mortgage-bond settlement with the bank won their bid to remove the case from a federal judge and return it to state court.

The U.S. Court of Appeals in Manhattan overturned a lower court ruling and granted a request by Bank of America and the investor group to remand the case to New York state court, where it was first filed, according to a decision yesterday.

“The case was not removable from state court and must be remanded,” the appeals court said.

The settlement, which would resolve claims from investors in Countrywide Financial Corp. mortgage bonds, was filed last year in New York State Supreme Court and was initially set for consideration at a November hearing. Before that hearing took place, the case was removed to federal court by entities under the name Walnut Place that own some of the securities.

The decision sending the case back to state court is good for investors in Countrywide bonds because it reduces uncertainty in the settlement, Barclays Capital said in a research note after the decision. Bank of America acquired Countrywide in 2008.

“The move back to New York state court increases the likelihood of the settlement going through and pushes the timeline forward,” Barclays said.

Bank of America along with the group of institutional investors that negotiated the settlement, including BlackRock Inc. (BLK), fought the transfer of the case to federal court and argued the case belonged in state court. They were joined by Bank of New York Mellon Corp. (BK), the mortgage bond trustee, which sought approval for settlement in state court.

“We are pleased the jurisdictional issues have been resolved and we can now move toward getting the settlement approved,” Robert Madden, an attorney for the investor group, said in a telephone interview.

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said the lender looks forward to completing the court proceeding to obtain approval for the agreement.

Kevin Heine, a spokesman for Bank of New York, and Owen Cyrulnik, a lawyer for Walnut Place, declined to comment.

The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-05988, U.S. District Court, Southern District of New York (Manhattan).

Verdicts/Settlements

News Corp. to Pay $950,000 to Pop Star Over Phone Hacking

News Corp. (NWSA) agreed to pay 600,000 pounds ($952,000) to Charlotte Church, the U.K. pop star, and admitted its News of the World tabloid hacked her mobile-phone messages for “many years,” starting when she was 16 years old.

At a court hearing yesterday in London, News Corp. lawyers said the company regularly harassed Church’s family, put them under surveillance, hacked the phone of her father and acquired details of her mother’s “complex medical history” and suicide attempt to write scoops about the Welsh singer, now 26.

“I would have learned nothing more from an actual trial, since it is clear that no one from News International was prepared to take the stand to explain their actions,” Church said in a statement referring to the company’s U.K. publishing unit. “In my opinion, they are not truly sorry, only sorry that they got caught.”

One of about 70 victims to sue News International, Church settled last week, days before the first civil trial over the scandal was to begin. The deal comes after a person familiar with the matter, who isn’t authorized to speak about the case, said Church’s agent in Los Angeles and publicist in New York have been identified as the first potential American victims of the tabloid’s hacking.

Church and her parents, James and Maria, sued in December after the Metropolitan Police showed them evidence the News of the World’s ex-private investigator, Glenn Mulcaire, who was jailed for phone hacking, had intercepted their phone messages as late as 2006 to write stories about them.

Church, who sang at Rupert Murdoch’s wedding in 1999, when she was 13, settled after News International’s lawyers told a judge they would seek to question her mother about her mental state during any trial to potentially reduce damages. As part of the accord, News Corp. said it coerced Church’s mother into giving an interview about her attempted suicide.

Judge Geoffrey Vos said he would set another deadline for new phone-hacking victims to come forward and that a trial could take place a year from now, if they don’t settle. News International is making “superhuman efforts” to settle the cases, he said.

The case is Church v. News Group Newspapers, High Court of Justice Chancery Division, HC11C03393.

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Amazon, Bookstore Group Settle Suit Over Advertising Claims

Amazon.com Inc. (AMZN) and a trade group for college bookstores settled a lawsuit over Amazon’s advertising for textbook discounts, the group said.

The biggest online retailer was advertising discounts of 30 percent on new college textbooks and 90 percent on used ones. In May, Amazon asked a federal court in Seattle, where the company is based, to declare that its advertising wasn’t false or misleading.

Amazon provided the methodology by which it substantiates its savings claims to the National Association of College Bookstores Inc., the group said in an e-mailed statement yesterday. While not endorsing the methodology or the results obtained, the trade group agreed there’s no current dispute about the advertising claims, according to the statement.

Amazon and the group agreed not to challenge each other about the advertising claims for one year. The settlement didn’t include an exchange of money, the group said.

Mary Osako, spokeswoman for Amazon, didn’t immediately return an e-mail message seeking comment about the settlement.

The case is Amazon.com v. National Association of College Stores Inc., 11-754, U.S. District Court, Western District of Washington (Seattle).

For the latest verdict and settlement news, click here.

Lawsuits/Pretrial

BB&T Purchase of BankAtlantic Unit Barred by Delaware Judge

BB&T Corp. (BBT)’s purchase of BankAtlantic Bancorp’s primary business unit was barred by a Delaware judge, who said the sale would harm shareholders.

BankAtlantic shareholders including Hildene Capital Management LLC sued in November after BB&T announced it would pay as much as $301 million to acquire BankAtlantic’s retail- lending unit. The deal excludes Fort Lauderdale, Florida-based BankAtlantic’s non-performing assets. Delaware Chancery Court Judge J. Travis Laster said the transaction would trigger an acceleration of debt that BankAtlantic wouldn’t be able to pay.

“Because this eventuality will inflict irreparable harm on the plaintiffs, I have entered contemporaneously an order permanently enjoining Bancorp from consummating the sale,” he said.

“We need some time to review the ruling and will have a comment later,” David White, a spokesman for Winston-Salem, North Carolina-based BB&T, said in a phone interview.

Representatives of BankAtlantic didn’t immediately return voice and e-mail messages seeking comment.

Sealink Funding Bear Stearns Suit Moved to Federal Court

Sealink Funding Ltd.’s lawsuit against JPMorgan Chase & Co. (JPM) over $2.4 billion in residential mortgage-backed securities was moved to federal court from New York state court.

Sealink sued New York-based JPMorgan Chase and units including Bear Stearns and EMC Mortgage LLC in September, accusing them of making misrepresentations about the risks and characteristics of the loans underlying securities bought between 2005 and 2007.

The lawsuit was moved to U.S. District Court in Manhattan by the defendants because it’s related to federal bankruptcy proceedings and because it involves a party outside the U.S., according to documents filed in New York State Supreme Court on Feb. 24.

The lawsuit was one of several filed in New York state court during the past six months over residential mortgage- backed securities by Sealink, an Ireland-based fund created to manage Landesbank Sachsen AG’s riskiest assets after the German lender almost collapsed.

Sealink has also sued Bank of America Corp. (BAC)’s Countrywide unit over $1.6 billion in securities and Morgan Stanley (MS) over $556 million of the investments. The Countrywide case was moved to federal court in October. Sealink said last week that it intends to sue banks including Royal Bank of Scotland Group Plc and Credit Suisse AG (CSGN) over $948.8 million in mortgage securities.

The case is Sealink Funding Ltd. v. Bear Stearns & Co. Inc., 652681/2011, New York State Supreme Court, New York County, Manhattan.

For more, click here.

Apple Wins Temporary Ruling on German IPad, IPhone Sales

Apple Inc. (AAPL) won a German appeals court ruling temporarily blocking the enforcement of a patent verdict obtained by Motorola Mobility Holdings Inc. (MMI) in December.

Motorola Mobility, which forced Apple to remove some iPad and iPhone models from its German online store for a short period, can’t enforce the verdict during an appeal. The ruling was issued after the iPad maker revised license-agreement terms it offered Motorola Mobility, the court said in an e-mailed statement yesterday.

“At the current state of the proceedings, it is to be assumed that Motorola Mobility would violate its duties under antitrust rules if it continues to ask Apple to stop the sales,” the court said in a statement.

Motorola Mobility, which is being acquired by Google Inc., and Apple are entangled in numerous patent disputes. Yesterday’s case concerned a so-called standard essential patent that companies must license to competitors because they can’t produce the devices without the technology. Cupertino, California-based Apple has also filed a complaint with the European Union accusing Motorola Mobility of violating a pledge to license industry-standard patents on fair terms.

Apple spokesman Alan Hely declined to comment. Motorola Mobility’s press office didn’t immediately reply to an e-mail seeking comment.

Yesterday’s ruling helps Apple’s prospects in the appeals case, which hinges on the terms Motorola Mobility must accept to be forced to grant a license. In their December verdict the Mannheim judges rejected Apple’s offer, saying it didn’t adequately take Motorola Mobility’s interest into account.

Yesterday’s case is OLG Karlsruhe, 6 U 136/11.

Monsanto Wins Dismissal of Organic Growers’ Gene-Patent Suit

Monsanto Co. (MON), the world’s largest seed company, won the dismissal of a lawsuit by growers of organic crops seeking to have its patents for genetically altered seeds invalidated.

U.S. District Judge Naomi Reice Buchwald in Manhattan threw out the organic growers’ lawsuit in a ruling dated Feb. 24, saying it represented no controversy and that she had no jurisdiction over the suit.

Organic farmers, seed companies and food safety groups sued St. Louis-based Monsanto in March 2011 seeking court protection against possible lawsuits by the company for patent infringement if genetically modified crops were mistakenly found among their yields.

“There is no evidence that plaintiffs are infringing defendants’ patents, nor have plaintiffs suggested when, if ever, such infringement will occur,” Buchwald wrote in her opinion.

The growers, claiming that Monsanto “aggressively asserted” its patent claims against hundreds of U.S. farmers, sought a ruling from Buchwald that the patents for genetically engineered seeds are invalid because they are “injurious.”

They claimed transgenic seeds might contaminate their crops and that they don’t want to have to fight Monsanto patent claims should that occur. The company has pursued “baseless litigation to intimidate farmers and restrict competition with its transgenic seed,” according to the growers’ complaint.

“Her decision to deny farmers the right to seek legal protection from one of the world’s foremost patent bullies is gravely disappointing,” Daniel Ravicher, a lawyer for the plaintiffs, said in an e-mail. “Her belief that farmers are acting unreasonable when they stop growing certain crops to avoid being sued by Monsanto for patent infringement should their crops become contaminated maligns the intelligence and integrity of those farmers.”

Ravicher said the plaintiffs will appeal.

“The ruling makes it clear that there was neither a history of behavior nor a reasonable likelihood that Monsanto would pursue patent infringement matters against farmers who have no interest in using the company’s patented seed products,” David Snively, Monsanto’s general counsel, said in a statement.

The case is Organic Seed Growers & Trade Association v. Monsanto Co., 11-02163, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

For the latest lawsuits news, click here.

New Suits

Molycorp Board, Majority Holders Sued Over Stock Bubble

Molycorp Inc. (MCP)’s board was sued on the company’s behalf over claims that it misled investors about the rare-earth market, creating a “price bubble” for the shares.

Molycorp’s directors and its controlling shareholders Resource Capital Funds and Pegasus Capital Advisors devised a scheme to temporarily inflate the stock’s value and then profit by dumping more than $1 billion of their personal holdings into the market in February, March and June of last year, according to the complaint. The lawsuit, which was made public yesterday, was filed by Arizona resident Ira Gaines, a trustee of Paradise Wire & Cable Defined Benefit Plan.

Directors falsely implied that Greenwood Village, Colorado- based Molycorp could meet increasing worldwide demand of critical rare earth elements, Gaines said in the complaint. Directors also omitted that mining experts predict the light rare earth elements the company may be able to produce this year will be in oversupply in the next several years, fetching lower prices, according to the complaint.

Company insiders, including current board members and a controlling group of shareholders, netted $1.6 billion in secondary offerings, months before concerns arose about declines in rare-earth prices and delays in construction at the company’s Mountain Pass mine, Gaines said in the complaint.

Jim Sims, a spokesman for Molycorp, declined to comment immediately when reached by phone.

Ross Bhappu, a partner for Denver-based Resource Capital and Molycorp’s chairman, didn’t immediately return a phone call seeking comment on the lawsuit. Officials at Pegasus didn’t immediately respond to an e-mail seeking comment.

The case is Gaines v. Mark A. Smith, CA7282, Delaware Chancery Court (Wilmington).

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

Trials/Appeals

Stanford Defense Rests Without Calling Financier to Testify

R. Allen Stanford’s lawyers rested their defense without calling their client to the witness stand in his criminal fraud trial in Houston.

After the defense completed its case, prosecutors said they had no rebuttal witnesses. U.S. District Judge David Hittner told the jury to return to the courtroom on Feb. 29. Lawyers will have two hours each for closing arguments and instructions to the jury will take an hour, the judge said.

Prosecutors have accused Stanford of running a $7 billion investment fraud scheme and misleading investors about the nature and oversight of certificates of deposit issued by his Antigua-based Stanford International Bank Ltd.

Stanford, 61, has maintained his organization had sufficient holdings to repay investors and was in the midst of consolidating its disparate entities when he and the bank were sued by the U.S. Securities and Exchange Commission in February 2009 and their assets seized.

The case is United States v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston).

Lenders Must Be Named in Foreclosures, New Jersey Court Says

New Jersey’s Supreme Court ruled documents indicating a bank’s intention to foreclose on a mortgage must name the lender before a residential property can be seized.

The case involves the foreclosure on an East Orange home owned by Maryse and Emilio Guillaume, who received a notice of intention to foreclose in May 2008. That notice included the name of the mortgage servicer, America’s Servicing Co., while omitting the name of the lender. Credit Suisse AG made the loan and assigned it to US Bank NA.

The state high court in Trenton ruled yesterday that the notice sent to the Guillaumes failed to comply with New Jersey’s Fair Foreclosure Act, which requires the name and address of the actual lender, as well as contact information for a loan servicer. Failure to do so creates “potential for significant prejudice” to homeowners, the court said.

“A misunderstanding about a lender’s identity could prompt a homeowner to make a critical error at a time when he or she is struggling to avert foreclosure,” the court said in the opinion.

The court ruled that while a trial court judge erred on that point in interpreting the Fair Foreclosure Act, the judge reached the correct conclusion in ordering a default judgment against the couple. The Guillaumes failed to demonstrate either “excusable neglect” or a “meritorious defense” to their foreclosure, according to the ruling.

The decision “restores order” to New Jersey’s real estate market, said Mark Melodia, a lawyer for Minneapolis-based US Bancorp (USB), the parent of US Bank.

“This is a reaffirmation that our Chancery Court judges are best positioned to determine in a given case whether a technical defect in foreclosure paperwork requires the extraordinary step of dismissing the case -- which, like this one, may have been pending for years before the defect was identified -- or whether a less drastic remedy, such as sending a new notice, is the fairer way to proceed,” Melodia, of Reed Smith LLP, said in a statement.

An attorney for the Guillaumes, Rebecca Schore of Legal Services of New Jersey, said that while she was pleased with the ruling on the need to name the actual lender in a notice of intention to foreclose, she was disappointed that the court didn’t require dismissal of the complaint.

“We hope that the New Jersey legislature will take this opportunity to clarify the statute and require dismissal of a foreclosure complaint where the plaintiff fails to comply strictly with its requirements,” she said in an e-mail.

The case is US Bank National Association v. Guillaume, 11-068176, New Jersey Supreme Court (Trenton).

Speculation Limits Judge Says He’s ‘Skeptical’ of CFTC Rule

U.S. Commodity Futures Trading Commission arguments in support of the agency’s limits on speculation are being questioned by the judge presiding over a challenge to the rule by two Wall Street groups.

“I’m kind of skeptical about their position of Congress mandating position limits,” U.S. District Judge Robert Wilkins said during a hearing in Washington yesterday.

The International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association urged Wilkins to put the rule on hold while he considers their legal challenge. They argued financial firms including Barclays Plc and JPMorgan Chase & Co. are losing millions of dollars preparing for a regulation that is likely to be overturned.

The groups argue that the CFTC never studied whether the regulation was “necessary and appropriate” or quantified the costs tied to implementing the rule.

“This is not a country where we look at tens of millions of dollars in direct costs and the entire restructuring of an industry and say that’s not irreparable harm,” Eugene Scalia, a lawyer for the groups, told the judge.

The groups, in one of the financial industry’s highest- profile efforts to weaken 2010’s Dodd-Frank law, filed lawsuits in two federal courts in Washington in December challenging the rule setting caps on the number of contracts a trader can have.

Jonathan Marcus, a lawyer for the CFTC, said the harm some of the groups’ members claim they’ve incurred seeking to comply are “miniscule” when compared to the companies’ annual revenue and income.

Wilkins said he will take the matter “under advisement” and issue a ruling “quickly.”

The case is International Swaps and Derivatives Association v. U.S. Commodity Futures Trading Commission, 11-02146, U.S. District Court, District of Columbia (Washington).

U.S. High Court Permits Suit on Investing Racketeering Profit

The U.S. Supreme Court allowed a New York City steel products retailer to proceed with a federal racketeering lawsuit claiming that a competitor gained an illegal advantage by investing criminal proceeds in a business.

The U.S. Chamber of Commerce, which has fought to restrict the use of federal racketeering laws in corporate conflicts, had urged justices to block that sort of claim. Letting the case proceed “would enable competitors who do not succeed in the marketplace to harass their rivals” via the courtroom, the Washington-based business organization said in a brief.

Ideal Steel Supply Corp. filed suit under the Racketeer Influenced and Corrupt Organizations Act alleging that a rival company, National Steel Supply Inc., used money from a tax-fraud scheme to open a competing store that damaged its business. The justices yesterday declined to hear an appeal by National seeking to block the lawsuit.

The racketeering law, known as RICO, permits lawsuits seeking triple damages associated with conspiracies involving a pattern of criminal activity. Originally targeted at organized crime, the law’s penalties have made it a weapon in more garden- variety business disputes.

The New York-based 2nd U.S. Circuit Court of Appeals said Ideal can proceed to trial with a claim that closely held National illegally boosted its business and profit for years by failing to collect sales tax from customers who paid with cash at a store in Queens. National used the ill-gotten gains to start a store in the Bronx, where closely held Ideal previously had a local monopoly on its niche-market products, according to the lawsuit.

The Supreme Court, without comment, declined yesterday to consider Nation’s appeal of that ruling.

The case continues a long-running family feud: the Brancato and Anza families who own Ideal and National are in-laws and cousins in addition to being business rivals.

The case is Anza v. Ideal Steel Supply Corp., 11-659, U.S. Supreme Court, (Washington).

For more, click here.

For the latest trial and appeals news, click here.

Litigation Department

SEC’s Ex-Top Lawyer to Repay $556,000 in Madoff Ponzi Funds

The family of David M. Becker, the former top lawyer for the U.S. Securities and Exchange Commission, agreed to pay $556,017 to settle claims over inherited money that was linked to Bernard Madoff’s Ponzi scheme.

The payment is equal to the entire amount of profits that Becker and his brothers inherited from a Madoff account held by their mother, who died in 2004, according to a statement yesterday by Amanda Remus, a spokeswoman for Irving H. Picard, the trustee liquidating Madoff’s firm.

Picard, in a November 2010 lawsuit filed in bankruptcy court in New York, had originally claimed that the Beckers received $1.5 million in fictitious profits.

Becker, who left the SEC in 2011 to return to private legal practice, faced criticism last year after Picard’s lawsuit was made public, suggesting he may have had a personal financial interest in policies he worked on at the SEC related to how Madoff customers should be compensated.

William Baker III, Becker’s attorney, said in an e-mailed statement yesterday that Becker made full disclosure of his mother’s account while he was at the SEC and followed the agency’s ethics procedures.

Becker “was unaware of his mother’s account until long after it was liquidated and he always expected that he would return any fictitious profits that he unknowingly received,” Baker said. “Mr. Becker has done everything possible, both at the SEC and in his private affairs, to assist the victims of the Madoff fraud.”

For more, click here.

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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