Bloomberg News

Health-Care Law, S&P, Morgan Stanley, BNY, Ryanair in Court News

March 29, 2012

U.S. Supreme Court justices indicated they may throw out other parts of President Barack Obama’s health-care law if they strike down its core requirement that Americans obtain insurance.

A day after the justices cast doubt on the insurance mandate’s survival, they tangled yesterday over the consequences such a ruling would have. The court concluded its third and final day of arguments on Obama’s signature domestic achievement, a law that would extend health coverage to 32 million people.

Justices across the ideological spectrum expressed interest in overturning at least the provisions that require insurers to cover people with pre-existing conditions. The administration and the insurance industry say those rules are so closely linked to the mandate that they can’t be separated.

The justices were divided on whether to go further and throw out everything that remains of the health-care law if they void the mandate. The court’s four Democratic appointees urged a limited ruling and the Republican appointees offered various levels of support for toppling all remaining provisions.

Yesterday afternoon, justices heard arguments on the law’s expansion of the Medicaid (USBOMDCA) program for the poor. Justices appointed by Democrats defended Congress’s power to expand the Medicaid program over objections from 26 states.

The afternoon session wrapped up more than 6 hours of arguments. The justices probably will rule in late June, months before the November election. A ruling against the measure would give ammunition to Obama’s Republican challengers, who have said the law should be repealed.

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S&P Says Investors Shouldn’t Rely on Letters in Ratings Alone

Standard & Poor’s said 13 Australian townships that lost almost all of their A$17 million ($17.7 million) investment in derivative-linked notes shouldn’t have relied just on the AAA rating issued by the U.S. company.

That’s exactly what S&P said in an accompanying report, that you can’t rely on the rating as investment advice, Steven Finch, the company’s lawyer, said in closing submissions in Federal Court in Sydney yesterday. “We don’t put the ratings out in three letters.”

The dispute over S&P’s letter ratings is part of the first suit accusing the company of misleading investors with its system for labeling a borrower’s creditworthiness, according to IMF (Australia) Ltd., which is funding the litigation. Twelve Australian townships, suing as a group, claim they lost A$15 million of A$16 million they invested in so-called Rembrandt notes rated AAA by S&P. A 13th township sued separately after losing more than 90 percent of its A$1 million investment.

Federal Court Justice Jayne Jagot, who will decide the case, questioned S&P’s argument that ratings alone can’t be relied on.

“So it’s meaningless,” Jagot said of the ratings.

“It’s not meaningless; it’s just attended by conditions which say ‘you can’t sue me if you rely on it,” Finch said.

The towns claimed in court documents that they relied on the AAA rating to make their investment decision. Town officials said during the trial they hadn’t read all of the accompanying documents.

The towns failed to make responsible efforts to understand the risks involved in investing in the notes, S&P said in written submissions to the judge.

The case is: Bathurst Regional Council v. Local Government Financial Services Ltd. NSD936/2009. Federal Court of Australia (Sydney).

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Lawsuits/Pretrial

Strauss-Kahn’s Lawyers Argue for Immunity in Maid’s Suit

Dominique Strauss-Kahn’s lawyers asked a Bronx judge to dismiss on diplomatic immunity grounds a lawsuit filed by the hotel maid who accused the former International Monetary Fund head of trying to rape her.

Lawyers for Strauss-Kahn, 62, said he was entitled to such protection as head of the IMF and requested New York Supreme Court Justice Douglas McKeon throw out the complaint. Attorneys for Nafissatou Diallo, the maid, have said Strauss-Kahn is using the argument as a delay tactic.

Strauss-Kahn’s lawyer said yesterday that the complaint must be dismissed because federal and state courts have thrown out similar suits “for decades” based on diplomatic immunity.

Strauss-Kahn didn’t assert immunity at the time of his arrest and wasn’t entitled to it when his lawyers were served with Diallo’s suit because he had already resigned his position at the IMF, Douglas Wigdor, one of Diallo’s attorneys, said in court yesterday.

The motion to dismiss was filed “to deny Miss Diallo a right to trial in this case and to delay these proceedings,” Wigdor said. “Strauss-Kahn doesn’t have immunity and Miss Diallo will have her day in court.”

Strauss-Kahn was pulled off an Air France (AF) flight at John F. Kennedy International Airport on May 14, arrested and charged with trying to rape Diallo, a housekeeper at the Sofitel in midtown Manhattan. He resigned as head of the IMF four days later. Diallo sued Strauss-Kahn on Aug. 8, seeking damages for what her lawyer called “violent and deplorable acts.”

Manhattan District Attorney Cyrus Vance Jr. decided to drop the criminal charges against Strauss-Kahn after concluding that Diallo had lied about events surrounding the alleged attack. The case was dismissed on Aug. 23.

The likelihood that Strauss-Kahn’s argument will prevail is “slim to nil,” said Sarah H. Cleveland, a professor of human and constitutional rights at Columbia Law School in New York and an expert on international law.

“He was a managing director of the IMF and there’s this UN Convention on the Privileges and Immunities of the Specialized Agencies that would give diplomatic immunity to the head of a specialized agency, but the U.S. isn’t a party to it,” Cleveland said in a phone interview. “And so he has the challenge of proving that absolute immunity for the heads of specialized international organizations is a rule of customary international law. And that’s a tough row to hoe.”

Strauss-Kahn told police he had diplomatic immunity when he was first detained at the airport in New York, and declined to assert the defense when he was interviewed by detectives later that day, Manhattan prosecutors said in a court filing in June. The IMF and the U.S. State Department said days after Strauss- Kahn’s arrest that he wasn’t entitled to diplomatic immunity.

“He failed to assert diplomatic immunity at the time of the criminal case,” Paul Callan, a former prosecutor in the Brooklyn District Attorney’s Office said in a telephone interview. “If he indeed had it and asserted it he could have returned to France immediately. Instead he did not assert it, so he’s facing an argument that he’s waived his diplomatic immunity by failing to assert it in the criminal case. I think that’s a very tough argument for him to get around.”

The case is Diallo v. Strauss-Kahn, 11-307065, New York State Supreme Court (Bronx County).

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Morgan Stanley’s Jennings Asks Court to Toss Stabbing Case

William Bryan Jennings, the Morgan Stanley (MS:US) U.S. bond- underwriting chief accused of stabbing a New York cab driver over a fare, asked a Connecticut judge to dismiss the prosecution, according to a copy of the filing provided by defense lawyer Eugene Riccio.

The motion to dismiss the case was filed yesterday in state court in Stamford, Connecticut, Riccio said. It couldn’t be immediately confirmed in court records.

“The motion speaks for itself,” Riccio said in a phone interview. “It’s my belief that there are serious deficiencies in the application for the arrest warrant.”

Jennings, 45, is accused of attacking the driver, Mohamed Ammar, on Dec. 22 with a 2 1/2-inch blade and using racial slurs after a 40-mile ride from New York to the banker’s Darien, Connecticut, home. He faces assault and hate-crime charges, which each bring a maximum of five years in prison. He pleaded not guilty March 9.

The case is State of Connecticut v. Jennings 12-0176761, Superior Court for the State of Connecticut (Stamford).

BNY Asks to Toss U.S. Fraud Case Over Currency Trading

Bank of New York Mellon Corp. (BK:US), the world’s largest custody bank, contested claims by the U.S. that it defrauded clients in foreign-exchange transactions and asked a court to dismiss the government’s lawsuit.

BNY Mellon said disclosures that it made to clients about the trading negate the claim that the bank engaged in a “scheme to defraud,” according to a court filing March 26 in federal court in Manhattan.

“The purported scheme to defraud is implausible,” BNY Mellon said. “A party that knows exactly what it is getting, and at what price, cannot have been defrauded.”

The U.S. Attorney in Manhattan said in an amended complaint that BNY Mellon defrauded clients, including public pension funds, of more than $1.5 billion through foreign-currency trades. The bank is also facing claims by several states over the same issue.

Ellen Davis, a spokeswoman for the U.S. Attorney’s Office, declined to comment on BNY Mellon’s filing.

The case is U.S. v. Bank of New York Mellon Corp. (BK:US), 11-6969, U.S. District Court, Southern District of New York (Manhattan).

Murdoch Faces New Hacking Claims as Lawmakers Probe Piracy

Rupert Murdoch’s News Corp., already engulfed in a U.K. phone-hacking scandal, faces fresh investigations in Australia and Britain as lawmakers said police should probe an alleged piracy scheme to topple pay-TV rivals.

NDS, a pay-TV software maker co-owned by News Corp., set up a unit in the mid-1990s to hack smartcard codes and leak them online, giving viewers free access to competitors’ programs, the Australian Financial Review newspaper said March 27. The report, which cites internal documents and e-mails, echoes allegations made by the BBC’s Panorama program this week. News Corp. (NWSA:US) denied the claims.

“If these allegations are true they mark a sinister new low in the hacking scandal,” said U.K. lawmaker Tom Watson, who’s on a parliamentary committee preparing a report about News Corp.’s handling of the phone-hacking probe. Britain’s media watchdog Ofcom “has a duty to investigate,” he said.

The claims increases pressure on James Murdoch, the deputy chief operating officer of News Corp. and chairman of U.K. pay- TV company British Sky Broadcasting Group Plc (BSY), as he seeks to move on from the phone-hacking scandal at News Corp.’s British tabloid unit. Murdoch, 39, was a non-executive director of NDS when the alleged smartcard hacking took place.

Murdoch, the son of Chairman Rupert Murdoch, has already faced calls from investors to step down from News Corp.’s board and resign from his role at BSkyB, the U.K.’s biggest pay-TV company. The BBC said there’s no evidence he was aware of the NDS scheme.

“If the allegations are proven, then it makes a mockery of the regulations that protect viewers,” said Mark Lewis, a lawyer for victims of News Corp.’s phone hacking who testified before the parliamentary committee. The claims “stretch the definition of ‘fit and proper,’” under U.K. law, he said.

News Corp.’s Australian unit, News Limited, said in a statement the Australian Financial Review’s report is “full of factual inaccuracies, flawed references, fanciful conclusions and baseless accusations which have been disproved in overseas courts.”

“NDS has consistently denied any wrongdoing,” News Corp. spokeswoman Miranda Higham said March 26. A federal jury and appeals court that heard similar allegations “rejected” the claims, as did the U.S. Department of Justice, she said.

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Argentine Funds Can’t Be Seized by Bond Holders, Judge Says

A U.S. court order restraining $2.2 billion held at the Federal Reserve Bank of New York for Citibank NA and an Argentine bank was lifted by a federal judge in Manhattan.

U.S. District Judge Thomas Griesa in New York yesterday lifted an order he issued in August in the Argentine bond litigation, that funds in accounts of Banco Central de la Republica Argentina and Citibank at the Federal Reserve Bank of New York can’t be transferred. Griesa said the plaintiffs, who are investment funds, had alleged the assets were for payment to holders of some Argentina defaulted bonds.

Griesa yesterday reversed that decision, saying no accounts of Banco Central and Citibank at the New York Fed are being used by Argentina for “commercial activity” in the U.S., and therefore can’t be seized by the plaintiffs in satisfaction of prior judgments issued by the judge.

The judgment stems from Argentina’s 2001 default on $80 billion owed to foreign creditors. The country hasn’t made principal or interest payments since the default.

Griesa criticized Argentina for failing to honor what he called “its lawful judgment debts.”

“This is yet another situation growing out of the Republic’s continued intransigence in failing to honor its lawful judgment debts,” Griesa said. “The plaintiffs in these cases, in seeking to vindicate their legal rights, are not able to do so by any regular and clear-cut devices. They are virtually forced to use methods of attempted recovery which are strained and uncertain.”

Argentina “is defying its obligations under the law,” Griesa said.

Aurelius Capital Partners LP and Blue Angel Capital I LLC and EM Ltd., which own defaulted Argentine bonds, had been seeking the securities to collect on judgments awarded by Griesa. Aurelius and Blue Angel were awarded 11 final judgments against Argentina for a total of $1.2 billion, Griesa said. EM Ltd. has been awarded a final judgment of about $595 million, Griesa said.

Charles Platto, a lawyer representing EM Ltd., said he was reviewing the ruling. “I don’t have any other comment except to refer you to Judge Griesa’s remarks in his ruling as to Argentina’s continuing failure to pay its obligation,” Platto said.

Mark Rodgers, a spokesman for Citigroup, and Jeffrey W. Smith, a spokesman for Federal Reserve Bank of New York, didn’t return calls seeking comment about the ruling.

The cases are Aurelius Capital Partners LP v. Argentina 07- cv-2715; EM Ltd. v. Republic of Argentina, 03-CV-2507; U.S. District Court, Southern District of New York (Manhattan).

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Verdicts/Settlements

U.K. Supreme Court Says Insurers Should Pay Asbestos Victims

Thousands of workers who fell ill from exposure to asbestos can receive compensation after the U.K. Supreme Court ruled insurers should cover their claims.

The judges decided that employers’ liability insurance was triggered the moment workers came into contact with hazardous material, rather than years later at the onset of mesothelioma, a cancer caused by asbestos inhalation.

“It would be remarkable if the insurers were not liable under the policies,” said Justice Jonathan Mance, one of five Supreme Court judges who dismissed the insurers’ appeal.

Companies including Akzo Nobel NV (AKZO) and Amec Plc (AMEC) and a group of local governments and individual claimants have been trying since at least 2006 to force four insurers, some of which are insolvent, to pay compensation on claims arising from the point at which workers inhaled the asbestos fibers.

“The result will be a relief to thousands of disease victims and their families,” whose insurance claims have been on hold because of the litigation, said Leon Taylor, a lawyer at DLA Piper LLP (1191L:US) who represented two insurers, BAI (Run Off) Ltd. and Independent Insurance Company Ltd. Both companies are insolvent and being wound down by PricewaterhouseCoopers LLP.

“For the insolvent insurance companies involved, their administrators and liquidators now have the judicial guidance they needed to satisfy their obligations,” Taylor said in an e- mailed statement.

Ryanair Loses EU Court Challenge Over Alitalia Rescue Loan

Ryanair Holdings Plc (RYA) lost a court challenge that may have forced Alitalia SpA (AZA)’s owners to repay a 300 million-euro ($401 million) loan from the Italian government.

The European Union General Court dismissed Ryanair’s case and confirmed the European Commission’s approval of the sale of Alitalia’s main assets to Compagnia Aerea Italiana, a group of Italian investors, after the airline’s 2008 bankruptcy, according to a statement from the Luxembourg-based tribunal.

CAI, including Intesa Sanpaolo SpA (ISP) and Atlantia SpA (ATL), wasn’t required to repay the state loan that the EU said was illegal aid, the court confirmed. Air France-KLM Group, Europe’s biggest airline, bought 25 percent of Alitalia from CAI in 2009.

“The sale did not have the effect of circumventing the obligation to recover the aid or of granting aid to the buyers of Alitalia,” the court ruled.

Ryanair, based in Dublin, said it will appeal the ruling.

“Today’s decision allows Alitalia and CAI to avoid repaying 300 million euros of state aid, which the EU Commission has already -- in 2008 -- ruled to be illegal,” Stephen McNamara, a Ryanair spokesman, said in an e-mailed statement. “This highlights the commission’s bias towards flag-carrier airlines, who repeatedly receive illegal state aid but never have to repay it.”

Alitalia said in a statement that it isn’t liable for any of the aid because it isn’t seen as a legal successor to the airline that sought bankruptcy protection. It also said it paid the market price for the carrier’s assets.

The case is T-123/09 Ryanair v. Commission.

Algeria Court Fines Orascom Telecom Unit $1.3 Billion

Orascom Telecom Holding SAE (ORTE), North Africa’s biggest mobile phone company, said an Algerian court fined its Djezzy unit about $1.3 billion for violations of foreign exchange regulations.

Orascom said its unit plans to appeal the ruling, which would temporarily halt implementation of the judgment, according to a statement on the company’s website.

Orascom and Algeria have been locked in an ownership dispute over Djezzy since early 2010. The Algerian government agreed to pay $6.5 billion to buy 51 percent of Djezzy, Reuters reported yesterday. An adviser to the Algerian Finance Minister said he had no information about the deal when contacted by Bloomberg for comment. Orascom Telecom’s press office said it didn’t have any information on the deal. The Egyptian exchange said it was seeking an explanation from Orascom.

“The court ruling is fact and it’s negative for the company while the Algerian government’s offer to buy Djezzy hasn’t yet been confirmed,” Amr El-Alfy, deputy director of research at Cairo-based Commercial International Brokerage Co., said by telephone. “It’s still not clear whether the government’s offer applies to 100 percent or 51 percent of Djezzy shares.”

For the latest verdict and settlement news, 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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