Correction, 5/2/2014, 11:00 a.m. EDT: An earlier version of this article erroneously stated that, in Kahn v. M&F Worldwide, Tariq Mundiya of Willkie Farr & Gallagher handled arguments for the defendants in chancery court without the participation of Thomas Allingham II of Skadden, Arps, Slate, Meagher & Flom. The story has been corrected. We regret the error.
Chevron v. Donziger
U.S. District Judge Lewis Kaplan in Manhattan ruled March 4 that American attorney Steven Donziger corruptly orchestrated the environmental litigation that resulted in a $9.5 billion Ecuadorean judgment against Chevron Corporation, violating racketeering laws. Kaplan also ruled that Donziger and his Ecuadorean clients committed fraud on the Ecuadorean court.
Kaplan issued an injunction against attempts by Donziger and his clients to enforce the judgment against Chevron anywhere in the United States, or to enjoy the benefit of enforcement efforts anywhere else in the world.
The judge’s 485-page opinion came after a bench trial in October and November in 2013 in which he heard from 31 witnesses about the Lago Agrio litigation in Ecuador that ended with Chevron being assessed $9.5 billion in damages for the environmental degradation created by Texaco Inc., Chevron’s predecessor oil company in Ecuador. It also followed a steady stream of opinions in Chevron’s favor since the oil company first filed in the Southern District seeking injunctive relief blocking Donziger and his associates from enforcing the judgment anywhere in the world.
Chevron tapped Gibson, Dunn & Crutcher’s Randy Mastro for the bench trial, with Andrea Neuman and Reed Brodsky examining several witnesses at trial. Donziger looked to Richard Friedman of Friedman Rubin; Deepak Gupta of Gupta Beck will lead in the appeal.
Kaplan’s decision traced the history of the litigation, starting with Texaco’s agreement to remediate pollution, a cleanup effort that was later handed off to a state-owned oil company in Ecuador. An initial toxic torts case against Texaco in New York was dismissed on grounds of forum non conveniens in 2001.
After Donziger filed suit in Ecuador against Chevron on behalf of 30,000 indigenous residents of the rainforest, Kaplan wrote, Donziger’s team began a high-pressure campaign that included coercion of judges and even the pursuit of criminal charges against Chevron’s lawyers in Ecuador.
Kaplan also reviewed the entry of the law firm Patton Boggs into the case both as Donziger’s counterweight to Gibson Dunn and as a means for Donziger to obtain litigation funding. Patton Boggs, led by James Tyrrell, authored a memo that laid out a strategy of maximum pressure on Chevron by filing attachment actions in amenable jurisdictions, including those countries where the powerhouse lobbying firm could use its extensive contacts to try to influence the outcomes.
Finding that Donziger and Ecuadorean defendants Hugo Gerado Camacho Naranjo and Javier Piaguaje Payaguaje engaged in a pattern of racketeering activity, Kaplan imposed a constructive trust for Chevron’s benefit on assets of the three that are traceable to the judgment in Ecuador and enjoined them from seeking to enforce the judgment in the United States “or from undertaking any acts to monetize or profit from the judgment.”
Donziger filed a notice of appeal on March 18. —Mark Hamblett, with Rebekah Mintzer
Asahi Kasei Pharma v. Actelion Ltd.
After one of its key drugs never made it out of the development phase, Japanese drugmaker Asahi Kasei Pharma Corp. pinned the blame squarely on its business partner, Switzerland-based Actelion Ltd. In the litigation that followed, Asahi’s lawyers at Morgan, Lewis & Bockius delivered in a big way, first winning a huge verdict that Actelion had tortiously interfered with Asahi’s drug, and then beating back Actelion’s appeal before California’s First Appellate District last December. And on March 12, the California Supreme Court declined to review the verdict, now valued at about $520 million, bringing to a quick end to Actelion’s argument that the verdict was based on a flawed and troublesome approach to calculating corporate liability.
In 2006 Asahi partnered with a California-based drug company known as CoTherix Inc. in hopes of launching a U.S. version of a hypertension drug known as fasudil. Actelion acquired CoTherix soon after, allegedly because it saw fasudil as a threat to one of its own products. Asahi alleged that under Actelion’s direction, CoTherix secretly shut down development of fasudil while pretending to be a good business partner.
Morgan Lewis’s trial team—Rollin Chippey II, Christopher Banks and Benjamin Smith—convinced jurors in San Mateo County Superior Court in 2011 that Asahi was entitled to lost profits and punitive damages from Actelion and its executives.
On appeal, Actelion’s lawyer, Evan Tager of Mayer Brown, argued that the trial judge set a dangerous precedent by ruling that Actelion was liable for its subsidiary’s conduct. The Washington Legal Foundation, a free market nonprofit advocacy group, warned in an amicus brief that the precedent would “open the floodgates to lottery-like damages awards.” But the appellate court shot down Actelion’s arguments in December, leading to the last-ditch appeal to the California Supreme Court that fell flat in March.—Jan Wolfe
In re Chocolate Confectionery Antitrust Litigation
In a big antitrust win on Feb. 26, the makers of three-quarters of America’s chocolate—the Hershey Company, Mars Inc. and Nestle USA Inc.—got a federal district judge in Harrisburg, Pa., to toss 91 cases claiming that the companies fixed prices between 2002 and 2007.
The claims, brought by dozens of grocery stores and other direct purchasers, were based largely on a parallel investigation in Canada, which led to a guilty plea by Hershey’s Canadian unit last year; there are also charges pending against the Canadian affiliates of Mars and Nestle. The direct purchasers, tapping Roman Silberfeld and Bernice Conn of Robins, Kaplan, Miller & Ciresi and Steven Maher of the Maher Law Firm, argued that price increases in 2002, 2004 and 2007 demonstrated price-fixing among America’s chocolate producers. They also alleged that the overlap of economic, operational and managerial factors between the U.S. and Canadian markets was so extensive that the countries were effectively a single market.
The manufacturers pointed to historic patterns of price increases where one company raises its prices and competitors quickly follow, and cited rising production and ingredient costs that prompted each to independently hike prices. Craig Primis of Kirkland & Ellis and William Cavanaugh Jr. of Patterson Belknap Webb & Tyler represented Hershey; David Marx Jr. of McDermott Will & Emery represented Mars; and Carmine Zarlenga of Mayer Brown teamed up with Peter Moll of Cadwalader, Wickersham & Taft on Nestle’s behalf.
In his decision on a summary judgment motion, U.S. District Judge Christopher Conner found that, while the plaintiffs’ case initially looked strong, there was no evidence of U.S. collusion even after years of discovery. —Saranac Hale Spencer, with R.M.
Kahn et al. v. M&F Worldwide Corp. et al.
In a decision on March 14 that should make it harder for shareholders to challenge the fairness of certain going-private transactions, the Delaware Supreme Court dismissed a suit alleging that MacAndrews & Forbes Holdings Inc. enriched itself at the expense of shareholders when it took over an affiliate in 2011.
The court clarified that it won’t second-guess the fairness of deals in which a controlling shareholder buys out minority stock owners, so long as certain conditions are met. The ruling is a win for MacAndrews & Forbes, a company owned by billionaire Ronald Perelman, and its lawyers at Skadden, Arps, Slate, Meagher & Flom and Willkie Farr & Gallagher.
MacAndrews & Forbes was the single largest shareholder of a financial services company called M&F Worldwide Corp. In 2011 MacAndrews & Forbes orchestrated a transaction in which it acquired the rest of the company. But to guard against claims that MacAndrews & Forbes exercised undue influence over the deal, an independent committee reviewed the transaction. The deal also required—and received—the approval of a majority of the minority shareholders. But some minority shareholders challenged the fairness of the deal in Delaware Chancery Court, urging the court to review the deal under the “entire fairness standard,” which puts the burden on the defendants to show that a deal was fair.
Willkie and Skadden, which represented the independent committee and MacAndrews & Forbes, respectively, urged the chancery court, and later the state Supreme Court, to apply a more deferential standard, the business judgment rule, which requires shareholders to rebut a presumption that board members acted in good faith and with proper care. Skadden’s Thomas Allingham II argued for them at the Delaware Supreme Court and at the chancery court, with Willkie’s Tariq Mundiya also arguing for them in the chancery court. Wolf Popper’s Carl Stine argued for shareholders at both courts.
Then-Chancellor Leo Strine Jr. sided with the defendants in May 2013, ruling that controlling-party takeovers are presumed to be fair so long as they meet two conditions: a vetting by an independent committee and support by most minority shareholders. The Delaware Supreme Court affirmed his decision.—J.W.