Category: Litigation

Unsecured Creditors Beware! The Western District of Texas Bankruptcy Court Declares an Unsecured Creditor Cannot Have Its Cake (Unsecured Claim) and Eat It Too (Post-Petition Legal Fees)

Recently posted in the National Law Review an article by Evan D. Flaschen, Renée M. Dailey, Mark E. Dendinger of Bracewell & Giuliani LLP about the issue of whether an unsecured creditor can recover post-petition legal fees under the Bankruptcy Code:

Bankruptcy courts have long debated the issue of whether an unsecured creditor can recover post-petition legal fees under the Bankruptcy Code. In the recent decision of In re Seda France, Inc. (located here(opens in a new window)), Justice Craig A. Gargotta of the United States Bankruptcy Court for the Western District of Texas denied an unsecured creditor’s claim for post-petition fees. In doing so, the Court has once again left the unsecured creditor with a bad taste in its mouth by declaring that an unsecured creditor seeking post-petition fees is asking permission to have its cake (a claim for principal, interest and pre-petition legal fees under applicable loan documents) and eat it too (a claim for post-petition legal fees).

Proponents of the view that an unsecured creditor cannot recover post-petition legal fees point to section 506(b) of the Bankruptcy Code, which allows as part of a creditor’s secured claim the reasonable attorneys’ fees and costs incurred during the post-petition period, and note the Bankruptcy Code is silent on anunsecured creditor’s right to post-petition legal fees. Essentially, the argument is since Congress provided for post-petition fees for secured creditors, it could have explicitly provided for post-petition fees for unsecured creditors but chose not to. Proponents of the alternative view cite the Second Circuit decision United Merchants and its progeny, where those courts refused to read the plain language of section 506(b) as a limitation on an unsecured creditor’s claim for recovery of post-petition legal expenses. The theory is that while the Bankruptcy Code does not expressly permit the recovery of an unsecured creditor’s claim for post-petition attorneys’ fees, it does not expressly exclude them either. The basic tenant is that if Congress intended to disallow an unsecured creditor’s claim for post-petition legal fees it could have done so explicitly.

In Seda, Aegis Texas Venture Fund II, LP (“Aegis”) timely filed a proof of claim in Seda’s Chapter 11 bankruptcy case claiming its entitlement to principal, interest and pre-petition attorneys’ fees under its loan documents with Seda as well as post-petition attorneys’ fees for the duration of the case. Aegis made various arguments in support of the allowance of its post-petition legal expenses including: (1) the explicit award of post-petition fees to secured creditors under section 506(b) does not mean that such a provision should not be implicitly read into section 502(b) (i.e., unim est exclusion alterius (“the express mention of one thing excludes all others”) does not apply), (2) the United States Supreme Court decision in Timbers does not control as Timbers denied claims of anundersecured creditor for unmatured interest caused by a delay in foreclosing on its collateral, (3) the right to payment of attorneys’ fees and costs exists pre-petition and it should be irrelevant to the analysis that such fees are technically incurred post-petition, (4) because the Bankruptcy Code is silent on the disallowance of an unsecured creditor’s post-petition attorneys’ fees, these claims should remain intact, and (5) recovery of post-petition attorneys’ fees and costs is particularly appropriate where, as in Seda, the debtor’s estate is solvent and all unsecured creditors are to be paid in full as part of a confirmed Chapter 11 plan.

The Seda Court rejected Aegis’ arguments and held that an unsecured creditor is not entitled to post-petition attorneys’ fees even where there is an underlying contractual right to such fees and unsecured creditors are being paid in full. With respect to Aegis’ argument on the proper interpretation of sections 506(b) and 502(b), the Court cited the many instances in the Bankruptcy Code where Congress expressed its desire to award post-petition attorneys’ fees (e.g., section 506(b)), and found that Congress could have easily provided for the recovery of attorneys’ fees for unsecured creditors had that been its intent. Regarding Aegis’ argument that Timbers does not control, the Court held that in reaching its decision on the disallowance of a claim for unmatured interest the Timbers Court found support in the notion that section 506(b) of the Bankruptcy Code does not expressly permit post-petition interest to be paid to unsecured creditors. The SedaCourt held this ruling should apply equally to attorneys’ fees to prohibit recovery of post-petition fees and expenses by unsecured creditors. The Court further held that section 502(b) of the Bankruptcy Code provides that a court should determine claim amounts “as of the date of the filing of the petition,” and therefore attorneys’ fees incurred after the petition date would not be recoverable by an unsecured creditor. In response to Aegis’ argument that non-bankruptcy rights, including the right to recover post-petition attorneys’ fees should be protected, the Seda Court noted that the central purpose of the bankruptcy system is “to secure equality among creditors of a bankrupt” and that an unsecured creditor’s recovery of post-petition legal fees, even based on a contractual right, would prejudice other unsecured creditors. The Court held this is true even in the case where the debtor was solvent and paying all unsecured creditors in full. The Court noted that a debtor’s right to seek protection under the Bankruptcy Code is not premised on the solvency or insolvency of the debtor and, therefore, the solvency of the debtor has no bearing on the allowance of unsecured creditors’ post-petition legal fees.

Seda is the latest installment in the continued debate among the courts whether to allow an unsecured creditor’s post-petition attorneys’ fees. The Seda Court is of the view that an unsecured creditor cannot recover post-petition legal fees for the foregoing reasons, most notably that the Bankruptcy Code is silent on their provision and public policy disfavors the recovery of one unsecured creditor’s legal expenses incurred during the post-petition period to the prejudice of other unsecured creditors. Depending on the venue of the case, there will undoubtedly be many more instances of unsecured creditors seeking recovery of their post-petition attorneys’ fees in a bankruptcy case until the Supreme Court definitively rules on the issue. Until then, keep asking for that cake . . . .

© 2011 Bracewell & Giuliani LLP

Entrepreneur’s Guide to Litigation – Blog Series: Discovery

Recently posted in the National Law Review an article by  Joseph D. Brydges of Michael Best & Friedrich LLP regarding the Discovery is a pre-trial phase of litigation.

 

Discovery is a pre-trial phase of litigation during which a party to a lawsuit seeks to “discover” information from the opposing party. Discovery is meant to facilitate the truth-finding function of the courts and, as such, parties to a lawsuit have an automatic right to discovery. From a strategic standpoint, discovery is used to gather and preserve evidence in support or defense of the claims made in the complaint. Further, discovery often helps parties narrow the focus of the litigation in preparation for trial and, in some cases, may lead to a pre-trial settlement. Discovery is an extremely important phase of litigation because the evidence gathered during discovery will serve as the foundation of a motion for summary judgment and/or strategy at trial.

Discovery proceedings are typically governed by state statutes in state court and by the federal rules of civil procedure in federal court. Generally, the scope of discovery permitted under these rules is very broad. Discoverable information may include any material which is reasonably calculated to produce evidence that may later be admitted at trial. However, certain information, including information protected by the attorney-client privilege and the work product of an opposing party, is generally protected from discovery. During the discovery period, parties may serve discovery requests upon one another. These discovery requests are made through one of several available discovery mechanisms including interrogatories, requests for admission, document requests and depositions.

Interrogatories are written discovery requests often utilized to obtain basic information such as names and dates. Any party served with written interrogatories must answer the questions contained therein in writing and under oath. Similarly, requests for admission consist of written statements directed towards an opposing party for the purpose of having the opposing party “admit” or “deny” the statements. Often, these statements seek to establish undisputed facts, authenticate documents and pin an opposing party to a particular position. Document requests are an important component of discovery in which a party may be required to make any relevant and nonprivileged documents available for inspection by the opposing party. Document production will be covered in greater detail in the following section entitled “Document Production.”

The lynchpin of discovery proceedings is the deposition. Depositions are used to obtain the out-of-court testimony of a witness with knowledge relevant to the litigation. They allow a party to discover any relevant information known to a witness and are often the only method of discovery available with regard to obtaining information from witnesses that are not a party to the litigation. During a deposition, the witness is questioned under oath and must answer the questions asked truthfully to the extent that the answer would not lead to the disclosure of privileged information. The rules governing depositions also allow for the deposition of an organization or corporation where a party is unable to identify the particular witness within the organization that may have knowledge of the information sought. In that instance, a party may identify the information sought and the organization will be required to designate a representative to testify on its behalf.

A party served with a discovery request must respond to the request within the specified time period or object to the requested discovery and state reasons for its objection. If, for some reason, a party refuses to respond to a discovery request, the party serving the request may move the court to compel a response. It is within the court’s power to compel a response to a discovery request and impose penalties on a party refusing to comply with a discovery request.

Click Below for previous posts from the Entrepreneur’s Guide to Litigation Blog Series:

© MICHAEL BEST & FRIEDRICH LLP

Supreme Court Affirms Clear and Convincing Standard of Patent Invalidity Proof

Posted on July 26, 2011 in the National Law Review an article by Jeremiah Armstrong and Paul Devinsky of  McDermott Will & Emery regarding the Supreme Court of the United States’ decision to  unanimously reject Microsoft’s plea to modify the clear and convincing evidence standard of proof required to invalidate a patent.

Delivering what is likely the final blow to its battle against a $240 million infringement judgment, the Supreme Court of the United States unanimously rejected Microsoft’s plea to modify the clear and convincing evidence standard of proof required to invalidate a patent. Microsoft v. i4i, Case No. 09-1504 (Supr. Ct., June 9, 2011) (Justice Sotomayor) (Justices Breyer and Thomas, concurring).

The appeal stems from a 2009 jury verdict that certain versions of Microsoft Word were found to infringe plaintiff i4i’s patent related to editing and formatting XML documents. Microsoft challenged the validity of the patent, based on the §102(b) on-sale bar, citing i4i’s sales of a software product called S4 more than a year before applying for the asserted patent. The S4 product was never presented to the U. S. Patent and Trademark Office (USPTO) examiner.

The U.S. Court of Appeals for the Federal Circuit squarely rejected Microsoft’s argument that the jury should have been instructed to apply a preponderance of the evidence standard of proof to the issue of patent invalidity. The Federal Circuitalso rejected Microsoft’s request to reduce the willful damages award, partially due to Microsoft’s failure to file a pre-verdict judgment as a matter of law (JMOL).

History

Microsoft petitioned the Supreme Court for certiorari to consider whether an accused infringer that challenges patent validity based on prior art not considered by the USPTO during prosecution must overcome the 35 U.S.C. §282 presumption of validity by “clear and concurring evidence” or whether some lower standard of proof will suffice (see IP Update, Vol. 13, No. 12).

The “clear and concurring” standard of proof has been used by Federal Circuit since its pronouncement in the seminal 1984 case, American Hoist & Derrick v. Sowa & Sons. Prior to the 1982 establishment of the Federal Circuit, most of the regional courts of appeal applied the less differential “preponderance” standard to the issue. However, the Federal Circuit, in setting its rule, took note of the “the deference that is due to a qualified government agency presumed to have properly done its job.”

Microsoft, in its certiorari petition, was supported for review of the Federal Circuit standard of proof by 11 amici representing major corporations, law professors and trade associations. Most of the amici faulted the deference given to the USPTO examiners who have limited time and resources for the examination of any particular application, who examine applications on a strictly ex parte basis and who only infrequently consider non-patent prior art publication or prior products. The amici also note that juries already tend to give undue deference to the decision of the USPTO in issuing a patent, especially in cases where the technology is complex.

Microsoft and the amici characterized the Federal Circuit rule as inflexible and another “bright line” test, a characterization that has resulted in the reversal of several Federal Circuit rulings in recent history, including the KSR obviousness case; a case in which the Supreme Court, in dicta, noted that the rational for showing deference to the USPTO was “much diminished” where the prior art in issue was not before the examiner.

Supreme Court Decision

In its analysis, the Supreme Court considered whether §282 established the standard of proof for invalidity as requiring clear and convincing evidence given the statutory language that a “patent shall be presumed valid” and “[t]he burden of establishing invalidity … rest[s] on the party asserting such invalidity.” While §282 does not explicitly state an invalidity standard, the Supreme Court explained that the language used when the statute was enacted in 1952 was synonymous with the clear and convincing evidence standard that was part of the recognized common law, as described by Justice Cardozo in Radio Corp. of America v. Radio Engineering Laboratories, Inc. Accordingly, the Supreme Court deferred to the opinion of Judge Rich, a primary author of the 1952 Patent Act, in American Hoist & Derrick, where he wrote that under §282 the “burden is constant and never changes and is to convince the court of invalidity by clear evidence.”

The Supreme Court said this strict invalidity standard always applies, even when evidence before the fact-finder was not previously available to the USPTO during the examination process: “[H]ad Congress intended to drop the heightened standard of proof where the evidence before the jury varied from that before the PTO—and thus to take the unusual and impractical step of enacting a variable standard of proof that must itself be adjudicated in each case —we assume it would have said so expressly.”

However the Supreme Court did suggest the use of tailored jury instructions: “When warranted, the jury may be instructed to consider that it has heard evidence that the PTO had no opportunity to evaluate before granting the patent” and “may be instructed to evaluate whether the evidence before it is materially new, and if so, to consider that fact when determining whether an invalidity defense has been proved by clear and convincing evidence.”

Notably, the Supreme Court recognized that new evidence not considered by the USPTO during examination—like the S4 software product in issue here—may “carry more weight” at trial (i.e., “the challenger’s burden to persuade the jury of its invalidity defense by clear and convincing evidence may be easier to sustain”) and, citing its earlier KSR decision, conceded that where prior art was not before the USPTO, “the rational underlying the presumption—that the PTO, in its expertise, has approved the claim—seems much diminished.” As the Supreme Court explained, “if the PTO did not have all of the material facts before it, its considerable judgment may lose considerable force. And, concomitantly, the challenger’s burden to persuade the jury of its invalidity defense by clear and convincing evidence may be easier to sustain.”

© 2011 McDermott Will & Emery

ALJ Upholds OIG’s Eight-Year Exclusion of Company Owner

Posted recently in the National Law Review an article by Meghan C. O’Connor of von Briesen & Roper, S.C. regarding OIG’s use of its exclusionary authority against individuals:

 

In yet another example of the OIG’s use of its exclusionary authority against individuals, an Administrative Law Judge (ALJ) upheld the OIG’s exclusion ofMichael D. Dinkel, the owner and President of a diagnostic imaging company. Dinkel has been excluded from participation in all Federal health care programs for a period of eight years.

The OIG has the authority to exclude individuals and entities from Federal health care programs for presenting or causing to be presented claims for items or services that the individual or entity knows or should know where not provided as claimed, or are otherwise false or fraudulent.

According to the OIG’s press release, Dinkel and his company, Drew Medical, Inc., submitted approximately 9,500 false claims worth $1.6 million to theMedicare and Medicaid programs for services related to venography, a radiology procedure. The OIG found that no venography services had actually been performed. Instead, claims were submitted to Medicare and Medicaid for a corresponding procedural code for MRI and CT procedures with contrast. Prior to Dinkel’s exclusion, a $1,147,564 civil False Claims Act settlement had been entered into with Dinkel and his company.

The ALJ found that Dinkel had a duty “to understand Medicare and Medicaid billing requirements and apply them scrupulously to the claims that he caused to be presented.” Furthermore, Dinkel’s failure to ensure his company properly claimed reimbursement “constituted reckless indifference to the propriety of the claims he cause to be presented.”

The ALJ’s full decision is available by request from the OIG.

©2011 von Briesen & Roper, s.c

D.C. Circuit Invalidates SEC's Proxy Access Rules

Posted on Sunday, July 24, 2011 in the National Law Review an article by John D. Tishler  and Evan Mendelsohn of Sheppard, Mullin, Richter & Hampton LLP regarding the  United States Court of Appeals for the District of Columbia Circuit’s decision invalidating the SEC’s proxy access rules adopted in August 2010:

July 22, in Business Roundtable v. Securities & Exchange Commission, No. 10-1305 (D.C. Cir. July 22, 2011), the United States Court of Appeals for the District of Columbia Circuit issued its decision invalidating the SEC’s proxy access rules adopted in August 2010 with the intention that they be effective for the 2011 proxy season (see our blog here). The Business Roundtable and U.S. Chamber of Commerce filed the lawsuit in September 2010 challenging the SEC’s adoption of proxy access rules and separately requesting for the SEC to stay implementation of the rules pending the outcome of the lawsuit. The SEC granted the request for stay in October 2010 and issuers were relieved of the burdens of proxy access for the 2011 proxy season. (See our blog posts here and here.)

The Court found that the Commission “neglected its statutory responsibility to determine the likely economic consequences of Rule 14a-11 and to connect those consequences to efficiency, competition, and capital formation.” The Court also criticized the SEC’s reliance on empirical data that purported to demonstrate that proxy access would improve board performance and increase shareholder value by facilitating the election of dissident nominees, pointing out numerous studies submitted in the rule comment process that reached the opposite result.

The SEC’s proxy access rules also included an amendment to Rule 14a-8 that would authorize stockholder proposals to establish a procedure for stockholders to nominate directors. The SEC stayed implementation of the changes to Rule 14a-8 at the same time it stayed implementation of Rule 14a-11; however, the changes to Rule 14a-8 were not affected by the Court’s decision.

The SEC will now need to decide whether to propose new regulations for proxy access and whether to permit Rule 14a-8 to go effective.  However the SEC decides to proceed, it seems unlikely that public companies will face mandatory proxy access for the 2012 proxy season. 

Copyright © 2011, Sheppard Mullin Richter & Hampton LLP.

Payments by Enron are "Settlement Payments" under the Bankruptcy Code's Safe Harbor Provisions

An interesting article recently published in the National Law Review  by David A. Zdunkewicz of  Andrews Kurth LLP  regarding the Second Circuit Court of Appeals protecting  payments made by Enron to redeem commercial paper prior to maturity as “Settlement Payments” under the Bankruptcy Code’s Safe Harbor Provisions.

In a matter of first impression in In Re: Enron Creditors Recovery Corp., v. ALFA, S.A.B. DE C.V., et al., No. 09-5122-bk(L) the United States Court of Appeals for the Second Circuit sided with two holders of Enron’s commercial paper who received prepetition payments redeeming the paper prior to its stated maturity. The price paid by Enron to redeem the debt was considerably higher than the market value of the debt.

Enron argued that the payments were either preferential or constructively fraudulent transfers and were not “settlement payments” under section 546(e) of the Bankruptcy Code because (i) the payments were not “commonly used in the securities trade,” (ii) the definition of “settlement payment” includes only transactions in which title to the securities changes hands and, therefore, because the redemption was made to retire debt and not to acquire title to the commercial paper, no title changed hands and the redemption payments are not settlement payments, and (iii) the redemption payments are not settlement payments because they did not involve a financial intermediary that took title to the transacted securities and thus did not implicate the risks that prompted Congress to enact the safe harbor.

The Second Circuit rejected each of Enron’s arguments, holding that the payments qualified as “settlement payments” under the Bankruptcy Code’s safe harbor provisions.

As to Enron’s first argument, the Court disagreed that the payments must have been common in the securities trade to qualify as a settlement payment under the Bankruptcy Code. Section 741(8) of the Bankruptcy Code defines “settlement payment” as “a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, or any other similar payment commonly used in the securities trade.” Enron argued that the phrase “commonly used in the securities trade” modified each of the preceding terms in section 741(8), not only the immediately preceding term. The Second Circuit disagreed and held that the phrase “commonly used in the securities trade” only modified the immediately preceding term in Section 741(8), i.e. it only modified “similar payment.” Thus there is no requirement that the payments made to the holders be common in the securities trade.

As to Enron’s second argument, the Second Circuit found nothing in the Bankruptcy Code or the relevant caselaw to exclude the redemption of debt securities from the definition of a settlement payment. Accordingly, there is no requirement, as Enron argued, that title to the securities change hands for the payment to be considered a settlement payment under the Bankruptcy Code.

Finally, the Second Circuit rejected the third argument advanced by Enron. Enron argued that the redemption of debt did not constitute a settlement payment because it did not involve a financial intermediary that took a beneficial interest in the securities during the course of the transaction. Thus, the argument goes, the redemption would not implicate the systemic risks that motivated Congress to enact the safe harbor provision for settlement payments.

The Second Circuit rejected the argument and held that the fact that a financial intermediary did not take title to the securities during the course of the transaction is a proper basis to deny safe-harbor protection, joining the Third, Sixth, and Eighth Circuits in rejecting similar arguments. The Court stressed that § 546(e) applies to settlement payments made “by or to (or for the benefit of)” a number of participants in the financial markets and it would be inconsistent with this language to restrict the definition of “settlement payment” to require that a financial intermediary take title to the securities during the course of the transaction.

While each case must be determined on a case-by-base analysis, the Second Circuit’s ruling in Enron reflects a continued trend among the Court of Appeals to broadly interpret the safe harbor provisions of the Bankruptcy Code and protect covered transactions.

© 2011 Andrews Kurth LLP

 

 

 

 

 

U.S. Supreme Court Stresses Importance of Commonality in Decertifying Massive Sex Discrimination Class of 1.5 Million Wal-Mart Employees

 Barnes & Thornburg LLP‘s Labor and Employment Law Department recently posted in the National Law Review an article about the U.S. Supreme Court’s reversing the largest employment class certification in history

In Wal-Mart, Inc. v. Dukes, reversing the largest employment class certification in history, the U.S. Supreme Court appears to have limited the circumstances in which federal courts can certify class actions – and not just in employment cases. The Court held that the lower federal courts had erred by certifying a class that included 1.5 million female employees from virtually every part of the country. The plaintiffs sought injunctive and declaratory relief, punitive damages, and backpay as a result of alleged discrimination by Wal-Mart against female employees in violation of Title VII of the Civil Rights Act of 1964. 

The Supreme Court held that class certification was improper because the class failed to meet the “commonality” requirement of Federal Rule 23(a)(3), which provides that a class can be certified “only if…there are questions of law or fact common to the class…” The Court noted that the mere allegation of “common questions” is insufficient under Rule 23. “Th[e] common contention… must be of such a nature that it is capable of classwide resolution – which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the [individual class members’] claims in one stroke.” 

The Court held that the Wal-Mart class did not meet the standard for commonality, because the evidence showed that Wal-Mart gave discretion to its supervisors in making employment decisions. The named plaintiffs “have not identified a common mode of exercising discretion that pervades the entire company… In a company of Wal-Mart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction.” The Court concluded that, “Because [the named plaintiffs] provide no convincing proof of a company-wide discriminatory pay and promotion policy, we have concluded that they have not established the existence of any common question.”

The lack of commonality found in Wal-Mart can arise in class actions of many kinds. Under Wal-Mart, a question is “common” under Rule 23(a)(3) only if it can be decided on a class-wide basis. In the past, many named plaintiffs, and some lower courts, have overlooked this essential point. And, as in Wal-Mart, in many cases a claim of commonality will fail precisely because there is no way to rule on the question without addressing the individual facts relating to each purported class member. Wal-Mart makes clear that such a lack of commonality is sufficient to defeat class certification.

In addition to meeting all of the requirements of Rule 23(a), a class must comply with one of the three subparts in Rule 23(b). The trial court in Wal-Mart had certified the class under Rule 23(b)(2), which allows a class where the defendant’s alleged conduct “appl[ied] generally to the class, so that final injunctive or declaratory relief is appropriate respecting the class as a whole…”   Another issue before the Supreme Court was whether such certification was proper where the class sought recovery of substantial backpay based on Wal-Mart’s alleged discrimination.

The Court ruled that the purported class could not be certified under Rule 23(b)(2),  holding that “claims for individualized relief (like the backpay at issue here) do not satisfy the Rule.” The Court said that Rule 23(b)(2) “does not authorize class certification when each class member would be entitled to an individualized award of monetary damages.”

Under the analysis in Wal-Mart , in the vast majority of class actions seeking a monetary recovery, the class can be certified (if at all) only under Rule 23(b)(3). Class certification under that provision is often more difficult, because a class plaintiff must prove that common questions “predominate” over individual questions and that a class action is “superior” to individual actions.  In addition, under Rule 23(c)(2)(A), individual notice must be given to all members of a Rule 23(b)(3) class at plaintiff’s expense, while such notice is optional, within the trial court’s discretion, if the class is certified under Rule 23(b)(2).

Wal-Mart is an important case in the area of employment law; but the Supreme Court’s holdings on the requirements of Rule 23 are likely to be helpful in defending class actions of all kinds

© 2011 BARNES & THORNBURG LLP

eDiscovery for Pharma, Biotech & Medical Device Industries

The National Law Review is pleased to inform you of IQPC’s e-Discovery for Pharma, Biotech & Medial Device Industries Conference in Philadelphia on October 24-25, 2011.  We’ve provided some information on the conference for your convenience:

Mastering eDiscovery and Information management strategies and best practices fit for life sciences industries

Why attend eDiscovery for Pharma?

  • Learn from industry leaders who have successfully implemented technology solutions that have reduced cost and errors in eDiscovery production. Network with government and industry leaders who are influencing the practice and procedure of eDiscovery in the Pharmaceutical, Biotech and Medical Device Industries.
  • Prepare your organization with defensible information management techniques specifically geared toward global pharmaceutical data.
  • Join peer discussions on industry hot topics such as predictive coding, cloud computing and legal holds.
  • Avoid mistakes and costly sanctions for eDiscovery misconduct and Federal Corrupt Practices Act investigations.
  • Benchmark your internal processes and evaluate their effectiveness in practical scenarios.

Hear Perspectives from:

  • Edward Gramling, Senior Corporate Counsel at Pfizer
  • John O’Tuel, Assistant General Counsel at GlaxoSmithKline
  • Chris Garber, eDiscovery Manager atAllergan, Inc
  • HB Gordon, eDiscovery Analyst, Legal Affairs, Teva Pharmaceuticals USA
  • David Kessler, Partner at Fulbright & Jaworski
  • Phil Yannella, Partner at Ballard & Spahr

View Full Speaker List

Entrepreneur’s Guide to Litigation – Blog Series: Complaints and Answers

Recently posted at the  National Law Review  by John C. Scheller of Michael Best & Friedrich LLP an entrepreneur’s guide to the litigation process.

A.  The Complaint

Litigation begins with a Complaint. “Complaint” is capitalized because it is a specific legal document, rather than a garden-variety complaint about something. The Complaint lays out the plaintiff’s specific legal claims against the defendant. It needs to contain enough facts that, if everything stated is true and there are no extenuating circumstances, a judge and jury could find in favor of the plaintiff.

As an example, Paul Plaintiff is suing Diana Defendant for violating a contract. Paul files a Complaint with a court claiming several facts: 1) Diana signed a contract to buy widgets; 2) Paul delivered the widgets; and 3) Diana did not pay the agreed-upon amount. If the court finds that these facts are true, then, unless there were extenuating circumstances, Diana probably breached a contract with Paul and should pay damages.

Paul’s Complaint also needs to allege facts showing that he has a right to be in that court. For example, if Paul wants to sue Diana inTexas, he has to show that the case and the parties have some connection toTexas. If he wants to sue her in a federal court, he has to meet a number of other criteria. (Federal court is generally only available if the parties are based in different states and the damages are relatively substantial or if the legal question is one of federal law.)

B.  Response to a Complaint

Once the defendant officially learns of the Complaint, she has a certain limited time to file some sort of response with the court. The time to respond, however, does not run from when the plaintiff filed the lawsuit, but generally when he officially delivered notice of the Complaint to the defendant. (There is a timeline that starts ticking when the defendant becomes aware of a state court lawsuit she wants to “remove” to federal court.) The amount of time for the defendant to respond varies by what court the case is in, but is generally a short period of time.

After receiving the complaint, the defendant has three options: 1) Ignore the Complaint and have the court grant judgment in favor of the plaintiff; 2) Tell the court that the Complaint is defective and ask for dismissal; or 3) Answer the Complaint. Option one is usually not a good plan; courts do not look favorably on defendants who ignore the legal process, and this option prevents a defendant from fighting the plaintiff’s claims.

Option two does not deal with the merits of the plaintiff’s issue. It is simply telling the court that the Complaint is defective for a variety of reasons including, for instance, how it was served, who the parties are (or are not), which court the case is in, or simply that, even if everything is true, the plaintiff cannot win. For example, if Paul sues Diana, but never tells Diana about the suit, Diana can then ask the court to dismiss the case. Also, if Diana works for DefendCo and Paul’s contract was actually with DefendCo and not with Diana, personally, she may be able to have the case dismissed because Paul sued the wrong party. If Paul sued Diana in a federal court inTexaswhen both parties are residents ofCaliforniaand neither has ever been to or done business in Texas, then Diana may be able to get the case dismissed, at least from theTexascourt.

Finally, there is the “So, what?” defense. If the Complaint doesn’t actually allege a cause of action, the defendant can ask the court to dismiss it. This usually happens because the plaintiff simply assumes a fact, but does not include it in the Complaint. If, for example, Paul alleges only that Diana failed to pay him a certain amount of money, but does not allege that a contract existed between them, then Diana can essentially say “So, what?” and ask the court to dismiss the case. She would ask the court to dismiss the case because, even if true (she really did not pay him any money), he did not plead any facts showing that she was supposed to pay him money. The defendant is not admitting the truth of the allegation; she is just saying that even if true, the plaintiff cannot win.

Finally, a defendant can file an Answer. Again, “Answer” is capitalized because it is a specific legal document. In an Answer, the defendant responds, paragraph by paragraph, to each of the plaintiff’s allegations. The defendant must admit, deny, or say that she does not know the answer to each specific allegation. Saying “I don’t know” functions as a denial.

For example, Paul’s Complaint probably alleges that Diana lives at a certain address. Assuming Diana actually lives there, she has to admit that fact. Paul may allege that he delivered the correct number of working widgets to Diana. If the widgets were not what she actually ordered or did not work, Diana would deny that allegation. Finally, Paul may claim that those widgets cost him a certain amount of money. Diana likely has no way to know how much Paul paid for the widgets, so she would say she does not know – thus leaving Paul to prove that allegation.

Also in the Answer, the defendant can claim affirmative defenses. Those tell the court that there were extenuating circumstances so that, even if everything the plaintiff says is true, the court should not find in favor of the plaintiff.

For example, if Paul told Diana not to worry about paying him for the widgets for six months but then turned around and immediately sued her, she would claim that as an affirmative defense.

Finally, the Answer may contain counterclaims. These claims are the defendant counter-suing the plaintiff for something. The counterclaims may be related to the original suit or not. Usually they are related, but they do not have to be. This section follows the same rules as if the defendant were filing a complaint.

For example, Diana may counterclaim against Paul because he sent her the wrong widgets and, perhaps, add a claim that when Paul delivered the widgets to her warehouse, he backed his truck into her building and caused damage. She would then counterclaim for breach of contract and property damage. The court would then sort out the whole mess to decide who owed whom how much.

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New York’s Highest Court Reinstates $5 Billion Lawsuit By Big Banks Against MBIA

Posted recently at the National Law Review by Michael C. Hefter and Seth M. Cohen of Bracewell & Giuliani LLP news about New York’s highest court reinstating a $5 billion lawsuit brought by a group of banks, including Bank of America and Wells Fargo, against MBIA. 

New York’s highest court yesterday reinstated a $5 billion lawsuit brought by a group of banks, including Bank of America and Wells Fargo, against insurance giant MBIA. ABN AMRO Bank, et al. v. MBIA Inc., et al., — N.E. 2d –, 2011 WL 2534059, slip op. (June 28, 2011). The Plaintiffs-banks sought to annul MBIA’s 2009 restructuring, which separated the insurer’s municipal bond business from its troubled structured finance unit, on the grounds that the transactions left the insurer incapable of paying insurance claims in violation of New York’s Debtor and Creditor Law. The Superintendent of Insurance in New York approved the transactions that effectuated the split of MBIA’s business in 2009. 

The Court of Appeals’ decision represents a victory for Wall Street banks in one of the many battles being fought in connection with the collapse of the financial markets. Those banks saw their fraudulent transfer claims against MBIA dismissed earlier this year by the Appellate Division, First Department. The intermediate appellate court determined that the banks’ fraudulent transfer claims were a “collateral attack” on the Superintendent’s authorization of the restructuring and that an Article 78 proceeding challenging that authorization was the sole remedy available to the Plaintiffs. The banks’ remedies under Article 78 – a procedure entitling aggrieved parties to challenge agency decisions – would be limited compared to those remedies available in state or federal court under a fraudulent transfer theory. 

At issue for the Court of Appeals was whether the Plaintiffs-banks had the right to challenge the restructuring plan in light of the Superintendent’s approval. Plaintiffs argued that the restructuring was a fraudulent conveyance because MBIA Insurance siphoned approximately $5 billion in cash and securities to a subsidiary for no consideration, thereby leaving the insurer undercapitalized, insolvent and incapable of meeting its obligations under the terms of the respective insurance policies. MBIA countered that, as held by the First Department, Plaintiffs’ claims were impermissible “collateral attacks” on the Superintendant’s approval of the restructuring. 

In a 5-2 decision, the Court of Appeals modified the First Department’s decision and reinstated the Plaintiffs’ breach of contract, common law, and creditor claims. In an opinion authored by Judge Carmen Beauchamp Ciparick, the Court held that NY Insurance Law does not vest the Superintendent with “broad preemptive power” to block the banks’ claims. MBIA Inc., 2011 WL 2534059, slip op. at 16.

“If the Legislature actually intended the Superintendent to extinguish the historic rights of policyholders to attack fraudulent transactions under the Debtor and Creditor Law or the common law, we would expect to see evidence of such intent within the statute. Here, we find no such intent in the statute.” Id.

Critical to the Court’s holding was that Plaintiffs had no notice or input into the Insurance Department’s decision to approve MBIA’s restructuring. “That the Superintendent complied with lawful administrative procedure, in that the Insurance Law did not impose a requirement that he provide plaintiffs notice before issuing his determination, does not alter our analysis,” Judge Ciparick wrote. “To hold otherwise would infringe upon plaintiffs’ constitutional right to due process.” MBIA Inc., 2011 WL 2534059, slip op. at 21. Moreover, the Court noted that Plaintiffs’ claims could not be properly raised and adjudicated in an Article 78 proceeding. Id.

The Court’s decision re-opens claims by multiple financial institutions that MBIA instituted the restructuring in order to leave policyholders without financial recourse. 

The case is ABN AMRO BANK NV. et al., v. MBIA Inc., et al, 601475-2009 (N.Y. State Supreme Court, New York County.)

© 2011 Bracewell & Giuliani LLP