Bloomberg News

Jones Day for Hostess, Simpson Thacher: Business of Law

November 20, 2012

The judge overseeing Hostess Brands Inc., while declining to approve the company’s liquidation, asked management and the bakers’ union to enter mediation today to resolve the strike that the maker of Twinkies and Wonder bread said forced it to shut. Hostess is being advised by Jones Day.

U.S. Bankruptcy Judge Robert Drain said yesterday at a hearing in White Plains, New York, that there are “serious questions as to the logic behind the decision to strike.” Hostess and the bakers’ union agreed to Drain’s request to enter confidential mediation under his supervision.

“To me, not to have gone through that step leaves a huge question mark over this case which I think will only be answered in litigation,” Drain said. “My desire to do this is prompted primarily by the potential loss of over 18,000 jobs, as well as my belief that there is a possibility to resolve this matter, notwithstanding the losses the debtors have incurred over the last week or so.”

Hostess hasn’t spoken with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union since August, said Heather Lennox, a partner at Jones Day working for the company. Hostess is seeking permission from Drain to pay bonuses to key managers while closing operations that will leave most of its 18,500 workers unemployed. Any agreement arising from the mediation would probably come too late to save the company, Lennox said.

“Things have gone too far to repair themselves under the current form,” Lennox, told Drain. “It would be very hard for us to recover from this damage even if there were to be an agreement in the near term.”

“Our best shot is to see what we can sell as going concerns and have the company continue that way,” she said. The hearing to consider Hostess’s request to wind down was postponed until Nov. 21.

Hostess said Nov. 16 that it would shut, claiming that a weeklong strike by the bakers’ union forced liquidation. The union blamed management’s concession demands, while some employees blamed both sides. Strikers were still outside the company’s facilities yesterday, Hostess’s lawyers said.

Corrina Christensen, a spokeswoman for the bakers’ union, didn’t immediately respond to an e-mail seeking comment on the mediation.

The judge may be creating risk for both sides that encourages them to reach a deal, Ken Russak, a bankruptcy attorney at Frandzel Robins Bloom & Csato in Los Angeles, said yesterday in an interview. “The bankruptcy judge would much prefer to have the parties work something out than having to make a decision in this highly charged environment,” Russak said.

The case is In re Hostess Brands Inc., 12-22052, U.S. Bankruptcy Court, Southern District of New York (White Plains).

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NYSE Hires Chertoff After SEC Report Cites Online Security Lapse

NYSE Euronext (NYX:US) hired Michael Chertoff, the former U.S. Secretary of Homeland Security, after a report by Securities and Exchange Commission examiners found staffers may have violated rules for safeguarding computers at a division that oversees exchanges.

Chertoff, who served as homeland chief under President George W. Bush and is now a lawyer at Covington & Burling LLP, has been retained by the New York Stock Exchange owner, according to spokesman Robert Rendine. The appointment followed a report prepared Aug. 30 by SEC interim Inspector General Jon T. Rymer that found some employees in the agency’s division of trading and markets failed to properly secure computers that may have contained classified exchange data. Rymer’s report found no evidence the devices were breached by hackers.

Online attacks at exchanges could allow perpetrators to provide false information that might move the price of securities. The SEC lab under investigation was responsible for, among other things, assessing the vulnerability of computer systems at stock exchanges. John Nester, a spokesman for the SEC, said the people who oversaw the equipment referenced in the report have left the agency.

“NYSE and Nasdaq OMX are active on a global scale marketing different communications systems and linkages and software so the IT side of their business is becoming much more of a revenue center and that could explain them becoming sensitive,” David Donald, executive director of the Centre for Financial Regulation and Economic Development at the Chinese University of Hong Kong, said in a telephone interview. “They see this information as being very valuable.”

While the inspector general is “not presently aware of an actual breach,” unprotected laptops were left unattended in hotel rooms, offices outside the SEC, hooked up to public Internet connections and used to check personal e-mail and download freeware, according to the Aug. 30 report, seen by Bloomberg.

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London Mayor Johnson Urges Oligarchs to Sue, Divorce in U.K.

London Mayor Boris Johnson urged Russia’s oligarchs to sue each other in the city’s courts, in contradiction of the government’s policy of discouraging “libel tourism.”

“If one oligarch feels defamed by another oligarch, it is London’s lawyers who apply the necessary balm to the ego,” Johnson told the Confederation of British Industry’s annual conference in London yesterday. “I have no shame in saying to the injured spouses of the world’s billionaires: if you want to take him to the cleaners, take him to the cleaners in London, because London cleaners will be grateful for your business.”

The Defamation Bill, currently going through the upper chamber of Parliament, requires the plaintiff to show that the U.K. is clearly the most appropriate place to bring a case, rather than simply the one where it will be easiest to win. The then-justice secretary, Ken Clarke, said in March of last year the bill was designed, among other things, to stop U.S. citizens from suing U.S. publications in London.

“We are trying to dissuade libel tourism on a point of principle,” Prime Minister David Cameron’s spokeswoman, Vickie Sheriff, told reporters yesterday.

Johnson argued that such cases, with the associated legal fees, are welcome. The money, he said, would go “into the pockets of chefs and waiters and doormen and janitors and nannies and tutors and actors and aromatherapists -- and keep the wheels of the economy turning, and put bread on the tables of some of the poorest and hardest-working families in the city.”

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Deals

Cisco Buying Meraki for $1.2 Billion for Wi-Fi Networking

Fenwick & West LLP advised Cisco Inc. (CSCO:US), which agreed to pay $1.2 billion for closely held Meraki Inc., adding technology that helps businesses manage Wi-Fi networks remotely and expanding its lineup of products for mid-sized customers. Wilson Sonsini Goodrich & Rosati PC is advising Merak.

Fenwick partner Doug Cogen led the deal team. Additional partners include Kris Withrow, corporate; Stephen Gillespie, technology transaction; Scott Spector, executive compensation and employee benefits; Ron Schrotenboer, tax; and Mark Ostrau, antitrust.

The Wilson Sonsini team was led by corporate mergers and acquisitions partners Michael Ringler and Rachel Proffitt. Additional partners included: Ivan Humphreys,tax; John Aguirre and Scott McCall, employee benefits and compensation; and Parag Gheewala, IP, technology transactions.

Wilson Sonsini has represented Meraki from its inception, with Steve Bochner and Proffitt as the lead relationship partners. The Meraki in-house legal team was led by Sean Butler.

Cisco, the world’s largest maker of computer-networking equipment, is using a combination of cash and retention-based incentives to pay for the acquisition, the San Jose, California- based company said in a statement.

Chief Executive Officer John Chambers is seeking to capitalize on the boom in demand for smartphones and tablets in the workplace by snapping up a company that helps businesses manage security and wireless access points via the Internet. The deal is aimed at broadening the customer base as Cisco cuts costs, shuts underperforming divisions and trims prices to fend off rivals such as Hewlett-Packard Co. (HPQ:US) and Juniper Networks Inc. (JNPR:US)

San Francisco-based Meraki expects about $100 million in bookings this year, and its employee base has ballooned to 330 from 120, Meraki CEO Sanjit Biswas wrote in a letter to employees discussing the deal.

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Moves

DOJ Antitrust Chief Wayland Returns to Simpson Thacher

Joe Wayland, the Acting Assistant Attorney General of the U.S. Justice Department’s Antitrust Division, has returned to Simpson Thacher & Bartlett LLP as a partner in the litigation practice.

Wayland, who joined the Justice Department in 2010 as the deputy assistant attorney general for civil enforcement in the Antitrust Division and was named acting head of the Antitrust Division in April 2010, oversaw the division’s criminal and civil matters.

Among his litigation victories was the government challenge to H&R Block’s proposed merger with TaxAct, which was the agency’s first successful litigation challenge to a merger in eight years. He also led the trial team that challenged AT&T’s proposed $39 billion purchase of T-Mobile USA, which was abandoned after four months of litigation, the firm said. Wayland was also involved at the Justice Department in policy initiatives directed at potential patent misuse and competition issues arising from health-care consolidation.

“Joe’s valuable government experience and achievements will be an asset to our clients and also complement the deep public sector experience of our antitrust team,” Pete Ruegger, chairman of Simpson Thacher’s executive committee, said in a statement.

Wayland joined Simpson Thacher in 1988 and became a partner in 1994. During his time at the firm, he represented clients in criminal and civil matters, including monopoly abuse cases, international cartel investigations and alleged anticompetitive conduct.

Simpson Thacher has more than 850 lawyers. The firm is based in New York with 11 offices in the U.S., Sao Paulo, London and Asia.

Firm News

Nelson Mullins Hires 16 Lawyers in Boston from Cetrulo & Capone

Nelson Mullins Riley & Scarborough LLP hired 16 attorneys from Cetrulo & Capone LLP, now Cetrulo LLP, who will make up two litigation teams in the firm’s Boston office. The new attorneys will be focused on civil litigation, construction and surety law or product liability and catastrophic accident litigation.

Bert Capone, Tom Hayman and Jim Carroll will lead the new lawyers. Capone and Hayman will head the construction and surety law group, while Carrol will head the liability team.

“We are pleased to have this experienced group join our firm,” Boston managing partner Amy Mandragouras said in a statement. “These attorneys have considerable experience in and ties to New England, and beyond, and have been active in some of the more high-profile cases in the region.”

Capone is primary trial counsel in surety, construction and construction-defect cases ranging from contractor defaults to defective construction performance. Hayman concentrates his practice in commercial, surety/construction and construction- defect litigation. He was involved in both the Providence and Big Dig litigations. Carroll’s trial practice has involved the defense of negligence and wrongful-death actions in product- liability cases and municipal-liability matters. He also represents several insurers in a variety of coverage matters.

Five others join the firm as partners. They include Dwight T. Burns III, who represents clients in construction-related civil litigation; Gregory J. May, who concentrates on environmental, products liability, and commercial claims; Francis R. Powell, who represents clients in commercial disputes, construction and surety litigation and defense of product liability and personal-injury claims. He also has been engaged in Big Dig litigation. Litigator Michael F. Sommerville focuses on environmental and toxic tort litigation brought by and against insurers and insured companies. Gillian A. Woolf concentrates on the defense of commercial claims.

The eight additional associates have experience in personal injury, products liability, insurance coverage, commercial construction and surety disputes, among other areas, the firm said.

Lawrence G. Cetrulo, founding partner of the Cetrulo firm, said he and Capone had been partners for 17 years and had been discussing a division of their practices for several years. “I handle commercial litigation on the defense side and toxic substance defense,” Cetrulo said. “The construction and surety practice didn’t overlap and it made sense to split up. We wish him good luck.” Cetrulo also said his new firm is exploring strategic alliances and he expects the 40-lawyer firm to grow.

Nelson Mullins’s Boston office opened in 2006 with two lawyers. It now totals 55 attorneys. The firm has more than 470 attorneys and government-relations professionals at 13 U.S. offices.

Litigation

Starr Suit Against New York Fed Over AIG Bailout Dismissed

Starr International Co.’s lawsuit against the Federal Reserve Bank of New York over the government’s bailout of American International Group Inc. (AIG:US) was dismissed by a federal judge in New York.

Starr, an AIG shareholder headed by the insurer’s former chief executive officer, Hank Greenberg, claimed the government used its 2008 bailout of the New York-based company to channel money improperly to its trading partners. U.S. District Judge Paul Engelmayer in Manhattan rejected the claims in a decision that was made public Nov. 16.

Starr is considering an appeal, Robert Dwyer, a lawyer with Boies, Schiller & Flexner LLP, which represents the company, said in a statement yesterday. Engelmayer’s ruling doesn’t affect a parallel suit filed against the U.S. government in the Court of Federal Claims in Washington, Dwyer said.

Starr sued the New York Fed last November, saying it breached its fiduciary duty to AIG shareholders by loaning $85 billion at 14.5 percent interest while offering better terms to banks in a “backdoor bailout.” AIG almost collapsed after bets tied to the housing market soured, and the bailout was revised at least four times before reaching $182 billion.

Starr said in its complaint that the bank coerced, induced and required AIG directors and officers to “violate their duties” to Starr International and AIG. Beginning in 2008 and continuing until at least January 2011, the federal government “imposed a series of transactions” that “resulted in depriving” AIG and its shareholders of tens of billions of dollars, Starr said.

In his decision, Engelmayer said that Starr can’t use the law of Delaware, the state in which AIG is incorporated, because it is pre-empted by federal law.

Engelmayer also said that despite a complaint that “paints a portrait of government treachery worthy of an Oliver Stone movie,” Starr failed to make a plausible argument that the Fed exercised sufficient control over AIG to support a claim that it had a fiduciary duty to the company.

The New York case is Starr International Co. v. Federal Reserve Bank of New York, 11-8422, U.S. District Court, Southern District of New York (Manhattan).

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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