Lawrence E. Jaffe Pension Plan v. Household International
On October 17 Robbins Geller Rudman & Dowd secured a record $2.46 billion judgment in a long-running securities fraud class action against a unit of British banking giant HSBC Group. In a final judgment, U.S. District Judge Ronald Guzman ordered HSBC and three former executives of the unit, Household International Inc., to pay a total of $1.48 billion in damages and $986 million in prejudgment interest. The verdict is the largest by far in a securities class action trial to date.
Investors filed suit in 2002 against Household, now known as the HSBC Finance Corporation, alleging that the company and its executives misled investors about its lending practices, the quality of its loans, and its financial accounting.
By the time the case went to trial in 2009 before Judge Guzman in Chicago, it was just the seventh securities class action tried to a verdict since the passage of the Private Securities Litigation Reform Act in 1995. HSBC was represented first by Milbank, Tweed, Hadley & McCloy and then by Wachtell, Lipton, Rosen & Katz, before it turned to Cahill Gordon & Reindel’s Thomas Kavaler as trial counsel. Cahill continued to represent the bank posttrial, but HSBC also brought on Skadden, Arps, Slate, Meagher & Flom’s R. Ryan Stoll and Mark Rakoczy in late 2010 to help with posttrial motions and, in the run-up to a potential appeal, brought on Paul Clement of Bancroft PLLC in July, according to the docket.
In a defense motion filed shortly after Clement signed on, HSBC’s lawyers asked Guzman to reverse the jury verdict or to retry the case. Guzman denied that motion in early October. Meanwhile, Robbins Geller partners Spencer Burkholz, Daniel Drosman, Luke Brooks and Michael “Mike” Dowd were continuing to seek damages related to 25,000 additional contested claims. Those claimants allege losses of more than $650 million.
HSBC planned to appeal. —Ross Todd
Activision v. Hayes
On October 9 the Delaware Supreme Court approved the video game publisher Activision Blizzard Inc.’s plan to buy back $5.8 billion in shares from Vivendi SA, handing a major come-from-behind victory to lawyers at Wachtell, Lipton, Rosen, & Katz and Skadden, Arps, Slate, Meagher & Flom.
Reversing a ruling from the Delaware Court of Chancery, the court, in a unanimous decision announced by Chief Justice Myron Steele, ruled that Activision’s bylaws don’t require the company to let non-Vivendi shareholders vote on the share buyback plan.
Wachtell’s William Savitt, who represents Activision’s special committee, argued on behalf of all the defendants. Michael Hanrahan of Prickett, Jones & Elliott argued for the plaintiff, Activision shareholder Douglas Hayes. Skadden’s Edward Welch and Edward Micheletti represented Activision.
Under the share buyback deal, completed October 14, Vivendi sold 427 million Activision shares back to the company for $5.83 billon. An investor group spearheaded by Activision CEO Robert Kotick acquired another $2.34 billion in shares.
After the plan was announced in July, Prickett Jones and Kessler Topaz Meltzer & Check brought a shareholder derivative suit in September seeking to block the deal. Defendants included Activision’s board, the Kotick-headed investor group, and a special committee of Activision’s independent directors that signed off on the deal. They argued that it amounted to either a merger or a business combination between Activision and Vivendi, which required a shareholder vote under Activision’s bylaws. Delaware Vice Chancellor J. Travis Laster preliminarily enjoined the deal a week later, ruling that the deal was a business combination.
In reversing Laster’s ruling, the Delaware Supreme Court found that the purchase agreement was neither type of transaction.—Jan Wolfe
SEC v. Cuban
In a high-profile loss for the U.S. Securities and Exchange Commission, a U.S. district court jury in Dallas returned a verdict on October 16 that business magnate Mark Cuban didn’t commit insider trading. For his successful defense, Cuban looked to former Dewey & Le­Boeuf partners Stephen Best and Christopher Clark, now of Brown Rudnick and Latham & Watkins, respectively.
In 2004 Cuban owned 600,000 shares of Momma.com Inc. The company planned to raise capital through a private stock offering. The maneuver was expected to dilute the value of preexisting shares, including shares owned by Cuban. Momma.com’s CEO telephoned Cuban and asked him to participate in the equity raise. Cuban declined and instead dumped his shares, avoiding a loss of $750,000.
The SEC brought a civil case against Cuban in November 2008, alleging that he sold the shares based on nonpublic information. The agency sought $2 million in penalties. Trial began in September, with Best and Clark leading the defense. Thomas Melsheimer of Fish & Richardson, a late addition to the trial team, handled openings and closings. The team focused on proving that Momma.com’s equity raise was public information; they also argued that even if Cuban learned nonpublic information from the CEO, he couldn’t be held liable because he never promised to keep that information confidential.—J.W.
In re Tobacco Cases II
Capping 16 years of topsy-turvy litigation, Munger Tolles & Olson helped Philip Morris USA dodge a major false-advertising class action over “light” cigarettes on September 24. San Diego Superior Court Judge Ronald Prager ruled that Philip Morris, a subsidiary of Altria Group Inc., falsely marketed low-tar cigarettes as less harmful and less addictive than regular smokes—but in the end he didn’t award smokers a penny.
In 1997, after studies showed that low-tar cigarettes are no healthier than their full-strength counterparts, Mark Robinson Jr. of Robinson Calcagnie Robinson Shapiro Davis filed suit against Philip Morris on behalf of a putative class of California smokers demanding a refund for past Marlboro Lights purchases. In 2001 Prager certified an enormous class of smokers who bought the brand during the previous eight years.
But in 2004, Californians voted in a tort reform measure, Proposition 64, that required plaintiffs in unfair competition cases to show economic injury. It was unclear, however, whether that “actual injury” requirement applied to all members of a class action or just to the lead plaintiffs. Prager, siding with Munger Tolles’ Gregory Stone and Sean Eskovitz and Kaye Scholer’s Jeffrey Wagner, found that the ruling applied to the entire class. Ruling that each plaintiff’s case had to be individually reviewed, he decertified the class.
In 2009, the California Supreme Court took the opposite position and recertified the class. Anticipating a large restitution estimate, Munger Tolles deposed 156 class members. The depositions showed that many would have bought the light cigarettes even knowing that they weren’t less harmful.
At trial, Robinson tried to portray Philip Morris as the mastermind of a sophisticated campaign of deception. But Stone argued that, far from being deceptive, the statement that the cigarettes were low in tar and nicotine was true. Stone also challenged the plaintiffs’ $544 million restitution figure, noting that the market for Marlboro Lights remained the same after the studies were released.
Ultimately, Stone wasn’t able to convince Prager that Philip Morris’ advertising was truthful. But Prager found the damages estimate flawed, concluding that smokers weren’t owed their money back, and tossed the case.—J.W.