NY Mets owners in $162 million Madoff settlement

NEW YORK,| Mon Mar 19, 2012 – Owners of the New York Mets baseball team have agreed to pay $162 million to settle a lawsuit by the trustee seeking money for victims of Bernard Madoff’s fraud, just before a trial was scheduled to begin.

The settlement was announced in Manhattan federal court by U.S. District Judge Jed Rakoff on Monday. Payments by the team are expected to occur over several years.

Irving Picard, the court-appointed trustee, had accused Mets owners Fred Wilpon and Saul Katz of ignoring warning signs that Madoff was running a fraud during their 25 years of investing with him.

The owners countered that they did not know Madoff was running a Ponzi scheme.

On March 5, Rakoff had ruled that the owners must repay as much as $83.3 million of fictitious profit from Madoff’s firm. The trial was expected to consider whether they should return an additional $303 million.

A hearing to consider final approval of the settlement is set for April 13. Picard and the Mets owners will work on details with former New York Governor Mario Cuomo, who has been mediating the dispute.

SEC-Citigroup $285 million fraud settlement gets new life

NEW YORK, Thu Mar 15, 2012 – A federal appeals court stopped just short of throwing out a judge’s controversial rejection of the U.S. Securities and Exchange Commission’s $285 million settlement with Citigroup Inc. in a fraud case.

The 2nd U.S. Circuit Court of Appeals said that U.S. District Judge Jed Rakoff in Manhattan appeared to have failed to give proper deference to the SEC, and may have overlooked the potential that Citigroup did nothing wrong.

While saying it needed to hear further arguments, the 2nd Circuit said there was a “strong” likelihood that Rakoff’s decision would be overturned.

The accord, announced in October, was intended to resolve civil fraud charges that Citigroup sold $1 billion of risky mortgage-linked securities in 2007 without telling investors that it was betting against the debt, resulting in more than $700 million of losses.

Rakoff rejected the settlement on Nov. 28. He said the SEC’s failure to require Citigroup to admit or deny the charges left him no way to know whether the settlement was fair.

That part of the ruling called into question the SEC’s decades-long practice of not requiring settling companies to admit or deny its charges.

He also called the $285 million payout “pocket change” for the third-largest U.S. bank, and said the accord did not serve the public interest.

The SEC and Citigroup had no immediate comment. Rakoff, who is sitting with the 2nd Circuit this week to hear cases, was also not immediately available for comment.

Bank of America CEO says mortgage process ‘healing’

NEW YORK – Thu Mar 8, 2012: Though costly for banks, a $25 billion settlement over foreclosure abuses will help a slowly improving housing market, Bank of America Corp. CEO Brian Moynihan said Thursday.

“The mortgage process is healing, which is good for all of us and the economy,” Moynihan said at an investor conference in New York.

The settlement, which will cost Bank of America $11.9 billion in cash payments and loan modifications, was announced Feb. 9, but final documents have not yet been filed.

Moynihan’s presentation was interrupted twice by protesters, including one who called for the breakup of the second-largest U.S. bank. Bank of America has lagged its peers in recovering from the financial crisis, as it struggles with losses and lawsuits tied to its 2008 purchase of subprime lender Countrywide Financial.

J&J to pay $158 million to settle Texas Risperdal case

AUSTIN, Texas ― Johnson & Johnson said on Thursday it will pay $158 million to settle a Texas lawsuit accusing the drugmaker of improperly marketing its Risperdal anti-psychotic drug to state residents on the Medicaid health program for the poor.

The settlement fully resolves all Risperdal-related claims in Texas, the company said. The agreement is specific to the state of Texas and does not involve any other ongoing state or federal Risperdal litigation.

The deal settles claims brought by Texas in 2004 and involves alleged Medicaid overpayments during the years 1994 to 2008 “and will circumvent potentially lengthy and costly appellate activities,” according to a statement from J&J’s Janssen Pharmaceuticals unit.

The complaint against J&J and several of its units filed in U.S. district court in Texas had alleged that company representatives “targeted every level of the Texas Medicaid Program with misrepresentations about the safety, superiority, efficacy, appropriate uses and cost effectiveness of Risperdal.”

Morgan Stanley settles with MBIA, sees $1.8 billion charge

NEW YORK ― Morgan Stanley and MBIA Inc. have agreed to a settlement that will remove some risky derivative contracts from the bank’s books and end lawsuits the two parties had filed against one another.

The deal, announced on Tuesday, will result in a $1.8 billion charge for Morgan Stanley in the fourth quarter. After a tax credit, the bank will lose $1.2 billion on the agreement.

The loss stems from declines in the value of mortgage-backed securities that Morgan Stanley owns. MBIA had been covering losses on the bonds because of credit-default swaps that Morgan Stanley purchased from the bond insurer.

Tuesday’s agreement will extinguish those derivative contracts, which have added to wild swings in Morgan Stanley’s quarterly earnings for the past five years.

It will also free up $5 billion worth of capital for Morgan Stanley and lift the bank’s Tier 1 common ratio by 75 basis points under new, tougher capital rules. Under existing rules, its Tier 1 common ratio will decline 30 basis points.

Morgan Stanley and MBIA also agreed to drop lawsuits against one another stemming from the CDS deals.

MBIA will drop a lawsuit over the quality of mortgage bonds underlying the contracts, Morgan Stanley said. The bank also agreed to withdraw from a lawsuit challenging a planned restructuring that will allow MBIA to write new business. MBIA is in similar litigation with several large banks.

The company will pay Morgan Stanley $1.1 billion to settle litigation, a source familiar with the matter told Reuters.

Shares of MBIA were up 7.7 percent at $12.28 in recent trading, while Morgan Stanley gained 4.6 percent to $16.09.

Bank of America lawyer says settlement challenger is Baupost

NEW YORK ― Walnut Place, a group of undisclosed investors who oppose Bank of America Corp’s. $8.5 billion mortgage bond settlement, is the Baupost Group, a distressed debt fund, according to an attorney for the bank.

“Walnut Place is actually a made up name,” Theodore Mirvis, an attorney with Wachtell, Lipton, Rosen & Katz who represents Bank of America, said at a hearing in New York state Supreme Court Thursday.

The “real” firm, which sued Bank of America and Bank of New York Mellon, as trustee, over mortgage-backed securities trusts is Baupost — “known as a distressed debt or sometimes a vulture fund,” Mirvis said.

Baupost spokeswoman Elaine Mann declined to comment on whether the Boston-based hedge fund was behind Walnut. David Grais, an attorney at Grais & Ellsworth LLP in New York who represents the Walnut entities, also declined to comment on whether Walnut was Baupost.

Like most hedge funds, Baupost doesn’t usually disclose its earnings or investments, but was reported to have $23 billion in assets last year.

Walnut Place is involved in separate cases against Bank of America.

In August, 11 entities sharing the name Walnut Place filed to remove the global $8.5 billion settlement case from New York state to federal court, citing its size and complexity.

The settlement was intended to resolve much of Bank of America’s remaining legal liability tied to its disastrous 2008 purchase of mortgage lender Countrywide Financial Corp. The deal, which was reached with over 20 institutional investors, would apply to other investors as well.

The decision to remove the case to U.S. District Court for the Southern District of New York is on appeal to the U.S. Court of Appeals for the 2nd Circuit.

Bank of New York Mellon is the trustee for the 530 mortgage securitization trusts covered by the proposed agreement.

Mirvis and Grais were in state court Thursday, arguing on a motion by Bank of America to dismiss a separate case that the Walnut Place entities brought against Countrywide Home Loans for breaching the agreements governing two mortgage-backed securities trusts. Trustee Bank of New York Mellon is also a defendant.

Identifying key opportunities to attempt settlement negotiations

Alex Craigie, Member, Dykema Gossett, PLLC

If your company has been hit with a lawsuit, you may want your attorney to tell you up front if he or she is going to settle the case or fight to the death through a trial.

But that’s not always something that can be determined in advance, says Alex Craigie, a trial lawyer with Dykema Gossett, PLLC. Instead, there are several key points during the process at which the attorney and the client should assess the value of going forward with the case versus settling.

“Settling is not always the best option,” says Craigie. “But if it is a case in which the defendant wants or needs to settle, there are certain key times during a case that it can leverage that option.”

Smart Business spoke with Craigie about critical times during a lawsuit to evaluate whether settling, or moving forward with the case, is the best option.

What is the first key point at which to consider settlement options?

The parties can discuss settlement at any time, but I’ve found there are a few pressure points during the life of a case where it can be strategically intelligent to consider engaging in settlement negotiations.

The first is at the very onset, before the company has been served with the suit or filed its response. At this point, the parties’ costs are still at a minimum, and this fact alone sometimes creates an incentive for a reasonable settlement.

But not always. At this point, the attorneys have only heard one side of the story— their client’s version. The plaintiff’s lawyers may be overly optimistic about the quality or value of the case. A company defendant and its lawyers might be too bullish or unrealistically undervalue the case. Either of these circumstances can complicate negotiations. While the concept of an early settlement sounds appealing, finding a common ground this early in the litigation can be challenging.

When is the next juncture that provides a settlement opportunity?

I find a second key time to negotiate may be as soon as the deposition of the plaintiff or the plaintiff’s key witness has been completed. Sometimes the sheer intrusiveness of the deposition makes the plaintiff uncomfortable enough that they no longer want to pursue the case the way they did at the outset. I find this particularly true in sexual harassment, discrimination and certain personal injury cases.

The deposition might also have revealed facts that weaken the case for one party. If the plaintiff’s case was weakened by the testimony, they may begin to value the case more realistically, closer to the defendant’s estimate.

By the same token, a company defendant’s desire to resolve a case might increase if harmful information was learned for the first time during the deposition.

How can filing a motion to dismiss lead to settlement?

A dispositive motion, whether for summary judgment or dismissal, should always lead an opponent’s lawyer to re-think their settlement stance.  Regardless whether it is a ‘slam dunk’ winner, a dispositive motion creates a risk that the plaintiff will walk away with nothing. This is a key pressure point and an opportunity to discuss settlement.

I can’t blame a company defendant, who has filed a strong motion, from becoming further entrenched in its bullish position. After all, it could be just a hearing away from complete victory. On the other hand, this is perhaps the best opportunity to find out if settlement is possible. The risk created by the motion can reduce a plaintiff’s expectations to the point where ‘peace’ can be purchased relatively cheaply. This is all the more true if, by settling, the company avoids the extraordinary defense costs and risks associated with a full-blown trial.

Is there still room to settle before a trial begins?

Absolutely. Trial is war. Preparing for any trial is a risky and expensive endeavor. It is also disruptive to the company, especially if it is a smaller company. It can take every hour of every day for several key employees to prepare. The company must devote an enormous amount of resources, both money and time, to preparing. If the case is going to be settled and should be settled — and let me emphasize that not every case should settle — an optimal time to do it is before you get to the final trial preparation phase.

In the final four to six months before the trial, the parties and their lawyers should be asking, ‘When are we going to start incurring trial preparation costs? When are we going to start pulling people away from their normal jobs to prepare for trial testimony? When are we going to start hiring experts, which becomes very expensive? When are we going to start filing pretrial motions and jury instructions?’

So, for example, if the trial is set for October, your attorney should be able to tell you that you’ll need to kick it up starting in late June. If you want to attempt to settle before trial preparation costs really start to mount, you need to be thinking June or earlier.

Do you suggest the parties use a mediator to help them negotiate?

Yes. But I don’t advocate working with a neutral prematurely. I’ve found that, in most cases, a neutral does not bring a lot of value to the parties’ settlement discussions until there has been at least some basic fact discovery completed. Otherwise, the neutral just regurgitates both parties’ unsubstantiated claims. In my view, the parties should complete one or more key witness depositions and exchange documents before engaging in a mediation. At that point, the neutral has something to work with.

Alex Craigie is a Member in Dykema’s Los Angeles office. His practice currently focuses on employment litigation. Reach him at (213) 457-1750 or [email protected]


U.S., GlaxoSmithKline settle case for $3 billion

NEW YORK ― The British drug company GlaxoSmithKline said Thursday that it had agreed to pay $3 billion to settle United States government civil and criminal investigations into its sales practices for numerous drugs.

The settlement would be the largest yet in a wave of federal cases against pharmaceutical companies accused of illegal marketing, surpassing the previous record of $2.3 billion paid by Pfizer in 2009. In recent years, drug companies have been prime targets of federal fraud investigations, which have recovered tens of billions of dollars for Medicaid and Medicare.

The cases against GlaxoSmithKline include illegal marketing of Avandia, a diabetes drug that was severely restricted last year after it was linked to heart risks. Company whistle-blowers and federal prosecutors said the company had paid doctors and manipulated medical research to promote the drug.

GlaxoSmithKline had already set aside cash for the settlement, which analysts said would remove legal uncertainty. The company’s stock rose 2.96 percent Thursday, to $44.55, near its 52-week high, amid a broader market advance of about 2 percent.

“This is a significant step toward resolving difficult, long-standing matters which do not reflect the company that we are today,” Andrew Witty, CEO of GlaxoSmithKline, said in a statement. “In recent years, we have fundamentally changed our procedures for compliance, marketing and selling in the U.S. to ensure that we operate with high standards of integrity and that we conduct our business openly and transparently.”

The agreement to settle its biggest federal cases should be completed next year, the company added in the statement. It said $3 billion would settle not only the Avandia case, but also a Justice Department investigation of its Medicaid pricing practices and a nationwide investigation led by the United States attorneys in Colorado and Massachusetts into the sales and marketing of nine of its drugs from 1997 to 2004.

GlaxoSmithKline did not specify how much money would resolve each case, nor the possibility of criminal findings and fines, saying the final settlement remained under negotiation. A Justice Department spokesman declined to comment.

GlaxoSmithKline, with a market value of more than $110 billion, had net profit of about $5 billion on sales of $43 billion in the year ending Sept. 30.

Washington Mutual sees path to quick confirmation of Chapter 11 plan

SEATTLE, Wash. ― Washington Mutual Inc. said it could end its three-year bankruptcy by November, allowing it to distribute $7 billion to creditors, if a judge limits the scope of outstanding disputes to be mediated.

Washington Mutual has languished in Chapter 11 bankruptcy since regulators seized its savings and loan in September 2008 in the biggest bank failure in U.S. history.

Delaware bankruptcy Judge Mary Walrath last month rejected the company’s bankruptcy plan, which lays out how it will repay creditors. In her opinion, she ordered mediation as a way to end lingering disputes.

In a court filing late on Monday, the company suggested that it could present a revised bankruptcy plan that would resolve Walrath’s concerns and be out of bankruptcy by Oct. 31.

The company said the proposed changes do not affect the payouts to creditors and would not require putting the modified plan to a new vote of creditors.

Ending the bankruptcy quickly would require that mediation would be limited to one issue: the claim by shareholders that hedge funds that negotiated Washington Mutual’s bankruptcy plan engaged in insider trading.

Shareholders accuse the hedge funds of using information gleaned from negotiating Washington Mutual’s bankruptcy plan to score big profits trading the company’s securities.

Shareholders believe their claim of insider trading could be remedied by preventing the hedge funds from collecting some of the roughly $2 billion they are owed by Washington Mutual.

That claim could be resolved after the company exits bankruptcy without any impact on other creditors, Washington Mutual’s attorney, Brian Rosen, said on Tuesday.

Washington Mutual, its creditors and shareholders are scheduled to discuss how to proceed at a status conference on Thursday in Delaware’s bankruptcy court.

Dole settles lawsuits filed by farm workers from chemical DBCP

LOS ANGELES ―  Dole Food Co. Inc. said it has settled lawsuits filed by farm workers claiming injuries from the agricultural chemical DBCP.

The settlement will not have a material effect on Dole’s financial condition, results of operations or cash flows, the company said in a statement.

Dole said the settlement included five lawsuits filed on behalf of farm workers in the United States and 33 lawsuits filed in Nicaragua.

The 33 Nicaraguan cases represent about $9 billion in claimed damages and, in seven of those cases, two judgments totaling $907.5 million, the company said.

The Los Angeles Court hearing the cases has set Nov. 3 as the date to assess and confirm the fairness of the settlement to all parties, Dole said.