Litigation and Trial - Max Kennerly : Philadelphia Trial Lawyer Max Kennerly : Business and Commercial Litigation : Civil Attorney : The Beasley Firm : Philadelphia Pennsylvania

Via Overlawyered, Eric Goldman and others favor HR 4364, the “Citizen Participation Act of 2009,” which would establish a federal anti-SLAPP law.

Around half the States have anti-SLAPP (i.e., Anti-"Strategic Lawsuit Against Public Participation") statutes which make it easier to dismiss suits allegedly filed to chill freedom of speech. If the lawsuit arises from the Defendants' exercise of their rights to free speech — which in the post-Citizens United era means virtually every time a corporation advances an agenda — then the Defendant can file, at the very beginning of the lawsuit, a "special motion" that requires the Plaintiff show concrete evidence proving each element of their claims.

The laws make sense, in theory. “The hallmark of a SLAPP suit is that it lacks merit, and is brought with the goals of obtaining an economic advantage over a citizen party by increasing the cost of litigation to the point that the citizen party’s case will be weakened or abandoned, and of deterring future litigation.” United States ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963, 972-73 (9th Cir.1999). The purpose of anti-SLAPP laws is to ensure the prompt dismissal of “legally meritless suits filed in order to obtain a political or economic advantage over the defendant, not to vindicate a legally cognizable right of the plaintiff.” Condit v. Nat’l Enquirer, Inc., 248 F. Supp. 2d 945, 952 (E.D. Cal. 2002)(internal quotation omitted). “The paradigm SLAPP suit is an action filed by a land developer against environmental activists or objecting neighbors of the proposed development.” Id.

All well and good. Indeed, anti-SLAPP Acts are sometimes used to dismiss bogus suits in which one side really was trying "to obtain a political or economic advantage" over someone with inadequate resources to defend themselves. See Melius v. Keiffer, 980 So. 2d 167, 170 (La. Ct. App. 2008)(granting motion to strike complaint brought by owners of a bar against area resident who had opposed an expansion of the bar); Lamz v. Wells, 938 So. 2d 792, 794 (La. Ct. App. 2006)(dismissing case filed one week before election by one judicial candidate against another); Darden v. Smith, 879 So. 2d 390, 393 (La. Ct. App. 2004)(dismissing case filed by public official against individual who filed a complaint with the Louisiana Board of Ethics).

Goldman gives his own example where an anti-SLAPP motion allowed a party with limited legal resources to avoid the cost and burden of full-fledged litigation:

All too often, vendors use actual or threatened litigation to take down content that criticizes their offerings. The proposed federal anti-SLAPP law applies to those lawsuits. Thus, if enacted, the federal anti-SLAPP law will help consumers share their true feeling about marketplace offerings with less fear of meritless lawsuits from vendors who would rather fight in court than compete.

BoingBoing’s recent resolution of a lawsuit brought by MagicJack nicely illustrates the virtues of anti-SLAPP laws. BoingBoing blogged some criticisms of MagicJack’s offerings, and MagicJack unwisely responded to that post with a lawsuit. Fortunately for BoingBoing, MagicJack sued it in California, which has a robust anti-SLAPP law. As a result, BoingBoing was able to end the lawsuit early (BoingBoing won its anti-SLAPP motion less than 3 months from complaint filing) and get the court to order MagicJack to pay its attorneys’ fees of over $50k.

But it's not always David using anti-SLAPP laws against Goliath; it's often the other way around.

Consider the BoingBoing case. Let's assume that, instead of suing BoingBoing, MagicJack retaliated by secretly hiring a spam company to inundate BoingBoing and other widely-read blogs with hostile comments questioning BoingBoing's motives and favorably referring to MagicJack.

BoingBoing, having no other options, sues MagicJack.

Would those allegations show MagicJack's "acts" were "in furtherance of the right of free speech?" Sure; MagicJack has just as much a right as BoingBoing to talk about other companies. So the anti-SLAPP Act would be available.*

At the beginning of the case, then, BoingBoing would be required to prove — prior to conducting any discovery, since HR 4364 automatically stays all discovery — that MagicJack was behind the posts, that the posts were false, that the posts were capable of a defamatory meaning, and that MagicJack was at "fault" in publishing the comments (defined in many states as "acting with malice or reckless intent").

How could BoingBoing prove all that immediately after filing suit? Most of that information would be in MagicJack's possession.

Odds are, BoingBoing wouldn't be able to do it. Their case would be dismissed, and MagicJack could continue to harass BoingBoing at will.

The law of unintended consequences, as they say.

Put simply, the problem with HR 4364 is that it's an extraordinarily powerful device — one that substantially increases the costs of bringing meritorious cases and will undoubtedly result in the inadvertent dismissal of many meritorious cases — with few limitations on its use.

Often the only means that "David" has to challenge "Goliath" is through a lawsuit, like when ordinary individuals are powerless to repair the damage caused by sloppy or sensationalized journalism. Yet, if Goliath wants to use the Act to dismiss David's lawsuit, he can and will.

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The producers of the Oscar-nominated The Hurt Locker, which Roger Ebert* deemed the second best film of the decade, were just sued by Sgt. Jeffrey Sarver, a former explosive ordinance disposal technician with the 788th Ordinance Company, with whom journalist Mark Boal — the writer of The Hurt Locker — was “embedded” on assignment for Playboy Magazine.

The complaint, filed in the United States District Court for the District of New Jersey (where Sgt. Sarver lived during the relevant times), gives some examples of the similarities:

The title “The Hurt Locker” – Plaintiff originated this term and said it often around colleagues while in Iraq. Defendant BOAL took interest in this phrase and asked Plaintiff what the phrase meant. Because Plaintiff was told Defendant BOAL was collecting information for the sake of documenting a factual report about Army EOD in general, Plaintiff acquiesced with BOAL’s request, which he said often while during his deployment in Iraq;

 “War is a Drug” – Another phrase Plaintiff used when talking to Defendant BOAL;

 “Will James”, played by Jeremy Renner” – Mr. Renner is essentially the same age and height; to personate Sgt. Sarver, Renner’s hair was dyed blonde, and Renner impersonated Sgt. Sarver’s persona down to the smallest detail, including the replication of Sgt. Sarver’s West Virginia accent, dialect, expressions, mannerisms, personality, and even dress habits (i.e. rolling his sleeves in the exact same manner as Sarver); succinctly stated, Renner acts and behaves just like Plaintiff5 throughout the movie;

Same Military & Family Background – Just like Plaintiff, character “Will James” is a former Army Ranger who has a young son who lives with his ex-wife back home; Renner is also referenced as a “red neck” and “trailer trash”;

Same EOD Missions – Most of the EOD missions depicted in the movie are identical to Plaintiff’s, including the same camps where the EOD team was based (ie Camp Victory), and the same manner in which they were handled - as documented in the Playboy Article;

[…]

Renner struggles with personal, family relationships just like, and in the same manner as, Plaintiff;

Renner drinking alcohol after successful missions;

Renner setting the record for the most IEDs disarmed by any single soldier;

As THR, Esq. notes,

According to legal experts on this topic, Sarver will need to overcome First Amendment protections that give broad protections on speech. Just putting someone's life story up on screen may not be enough.

Sarver's claims may be stronger if he, himself, had written about his experience in Iraq. Had Sarver written about his war stories, he might have been able to pursue a copyright claim that producers of "Hurt Locker" had violated his expression.

Sarver's best case may actually be if producers of "Hurt Locker" got things wrong. Potentially, Sarver could claim that "Will James" is just a thinly veiled depiction of him, but that they had put him in false light and defamed him with dishonest treatment about his character. We have seen these types of "libel-in-fiction" claims come up recently. 

Hence, the complaint continues:

Though the movie clings to the plaintiff’s likeness and personal circumstances throughout the movie, Plaintiff is also defamed in placed in a false light in several scenes, such as (1) the scene where Plaintiff explains to his young son that he essentially does not love him, and that the only thing plaintiff loves now is “war”. The movie ends by showing Plaintiff back in Iraq, starting another deployment mission; and (2) the portrayal of Plaintiff as a reckless, gung-ho war addict who has a morbid fascination with death which causes him to carelessly risk both his and his colleagues’ lives in the theater of war, simply to feel the thrill of cheating death.

The Complaint alleges seven counts:

• Misappropriation of Name & Likeness
• False Light Invasion of Privacy
• Defamation
• Breach of Contract
• Intentional Infliction of Emotional Distress
• Fraud
• Negligent Misrepresentation

As far as I can tell, Sgt. Sarver will have little trouble meeting most of the elements of misappropriation, with one exception:

In order that there may be liability under the rule stated in this Section, the defendant must have appropriated to his own use or benefit the reputation, prestige, social or commercial standing, public interest or other values of the plaintiff's name or likeness. It is not enough that the defendant has adopted for himself a name that is the same as that of the plaintiff, so long as he does not pass himself off as the plaintiff or otherwise seek to obtain for himself the values or benefits of the plaintiff's name or identity. Unless there is such an appropriation, the defendant is free to call himself by any name he likes, whether there is only one person or a thousand others of the same name. Until the value of the name has in some way been appropriated, there is no tort.

Restatement of the Law, Second, Torts, § 652, cmt c (emphases added); see Jeffries v. Whitney E. Houston Acad. P.T.A., 2009 N.J. Super. Unpub. LEXIS 1895, at *9 (App. Div. Jul. 20, 2009)("the purpose of an appropriation of likeness claim is to vindicate the property interest the plaintiff has in his or her name or likeness."). Misappropriation claims typically arise from false endorsements; here, however, Sarver certainly was not represented as directly endorsing the film. The challenge for his lawyers will be arguing that the use of his life story is sufficient "likeness" that it constitutes a de facto endorsement of the story.

False light and defamation are highly similar claims, and often analyzed together. As THR, Esq. said, there’s precedent out there for “libel-in-fiction,” and Sgt. Sarver’s case seems similar to the The Red Hat Club case linked above: taking an already incredible, but nonetheless real, story and scandalizing it some more. It’s a little bit harder for Sgt. Sarver here, though, since it seems that anyone who recognized him from the film would also know the differences between him and the character, and the complaint admits that he already had substantial family troubles and that he broke military regulations, such as drinking after missions. Those issues, however, are typically issues for a jury, not a judge, to decide.

The remaining claims are intriguing, though none are a good fit to the facts. Regarding breach of contract, it doesn’t appear that Sgt. Sarver was an intended third-party beneficiary to Boal’s “embedding” agreement with the U.S. Department of Defense, though he might be an implied third-party beneficiary. Without the contract in hand, it’s hard to say what will happen here. (One of the commentators at THR, Esq., linked to some of the Department of Defense embedding guidelines, which don't seem to be as strict as the complaint implies.)

The intentional infliction of emotional distress claim will likely go nowhere. The complaint essentially admits there’s no evidence the producers of the film intended to cause Sgt. Sarver harm. See Ortiz v. Ocean County Prosecutor's Office, 2005 U.S. Dist. LEXIS 29274, at *15–16 (D.N.J. Nov. 22, 2005)("To sustain such a claim, the conduct at issue must be 'so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency and to be regarded as atrocious, and utterly intolerable in a civilized community.”).

Similarly, the fraud and negligent misrepresentations claims will likely be dismissed. Most courts require some degree of explicit economic loss for these claims. McClellan v. Feit, 376 N.J. Super. 305, 313, 870 A.2d 644, 648 (App. Div. 2005)("Negligent misrepresentation constitutes an incorrect statement, negligently made and justifiably relied on, which results in economic loss."). It might be morally wrong to trick someone into revealing their personal story, but it’s not legally compensable as fraud or misrepresentation unless they're also tricked out of some money.

An interesting case to watch. Depending on Sgt. Sarver’s goals / demands, I’d expect a somewhat prompt settlement, though perhaps not until after the inevitable motion to dismiss is decided.  

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At the Fulton County Daily Report:

For $95, plaintiffs lawyers can buy a book that teaches them how to appeal to jurors' basic survival instincts, those that emanate from humans' "Reptilian" brains. ...

But in a DeKalb County wrongful death trial last month, [Plaintiffs lawyer Don] Keenan found that defense lawyers will also buy the book, "Reptile: The 2009 Manual of the Plaintiff's Revolution" -- and use it against him.

Representing a movie theater and a security company accused of not doing enough to prevent a fatal gang shooting in the theater parking lot, W. Winston Briggs and Matthew G. Moffett read from the book and referred to it during closing arguments.

One of their PowerPoint slides read, "Let's see if we can scare them/It could have been anyone killed out there ... because it's a public danger there ... but if you give us $ that will somehow eliminate this danger/They call this their 'reptile' strategy."

The jury rendered a defense verdict.

Here's what I don't understand: how is a book written by the plaintiff's lawyer relevant to the facts of the case?

The Georgia Rules of Evidence provide:

Evidence must relate to the questions being tried by the jury and bear upon them either directly or indirectly. Irrelevant matter should be excluded.

The jury wasn't asked their thoughts and feelings about Mr. Keenan's advocacy methods. They weren't compelled, by force of the state, to leave their work and their families to render a verdict on the Reptile book. They were there because, as the article says, "21-year-old Jesus Silencio was shot to death in the parking lot of the Regal Hollywood 24 movie theater on Interstate 85" and his father, on Mr. Silencio's behalf, brought suit against the theater and its security company.

Reptile has nothing to do with those facts. If the book suggests lawyers do anything inappropriate, that, too, is irrelevant: if a lawyer uses improper advocacy methods at trial, the judge will give corrective instructions to the jury or, if need be, declare a mistrial.

The case was about, and should have remained about, Mr. Sliencio's claims against the theater. Somehow, it became a referendum on Mr. Keenan, and an unfair one at that. Was Mr. Keenan allowed to show the jury how many times the defense lawyers have been threatened with sanctions for spoliating evidence? Could he have copies of all the seminars at the Defense Research Institute that the defense lawyers attended? Was he allowed to introduce evidence establishing how insurance companies — including the Defendants' insurer, the real party at interest — spend millions every year on propaganda to taint juror's perceptions of the civil justice system?

Or were the defense lawyers allowed to cast stones from their glass houses?

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Scott Greenfield recently featured an email exchange between a student and a professor at New York University's Stern School of Business that's been making the rounds lately.

One email is polite and concise.

The other email is an unfocused ramble. Instead of sentence stress, the author emphasizes their points through profanity, sarcasm, ALL-CAPS, and scatological references.  Instead of proper sentence construction, the author joins thoughts with ellipses.

I don't understand why the former author started the correspondence in the first place. Maybe the latter author is right about the issue at hand. Problem is, it's too hard to tell amongst the many distractions and it's psychologically harder to give credence to a person who is unable to maintain an appropriate tone for the situation.

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One of the true gems of the Internet is TED (Technology, Entertainment, Design), a nonprofit that invites luminaries from a wide variety of fields to give brief presentations about their signature ideas. A quick googling of "Best TED Talks" is well worth the hours of education and inspiration that will ensue.

I was thus disappointed to see that TED invited Philip K. Howard to talk about "Four ways to fix a broken legal system."

I have debunked Mr. Howard's work before (see my thoughts on his "Life Without Lawyers," his "health courts," and his claims about public support for tort reform). The bulk of his talk presents more of the same argument-by-anecdotes and generalized assertions that don't withstand a moment's scrutiny. Despite his claim around the 14:00 mark, I can safely assure my readers that we, as a society, do in fact still have seesaws, swingsets, and jungle gyms. Moreover, his overall argument that these problems are so insidious that you don't even notice them is, to me, unpersuasive.

About halfway through, Mr. Howard moves onto his four propositions, which are:

1. Judge law mainly by its effect on society, not individual situations
2. Trust in law is an essential condition of freedom. Distrust skews behavior towards failure
3. Law must set boundaries protecting an open field of freedom, not intercede in all disputes
4. To rebuild boundaries of freedom, two changes are essential: simplify the law and restore authority to judges and officials to apply law.

To call these propositions "vague" is an understatement.

That said, I generally agree with the first three. Indeed, it seems the irony of Mr. Howard's first proposition was lost on him; although his talk only mentions the former, for each funny story of a fishing lure with a warning label, there's a car manufacturer that bragged about avoiding a recall and ended up needlessly and carelessly endangering millions of people.

The fourth proposition, however, is where Mr. Howard and I diverge. It's not that I believe the law shouldn't be simple or that judges shouldn't apply the law; of course I do. I just don't believe it how he means it, which is to deny individuals the right to a jury trial.

But there's a bigger problem with his talk: the "authority to judges and officials to apply law" he claims should be "restored" never existed, and for good reason.

As part of his simplification argument, Mr. Howard gives, as an example, the United States Constitution. It's "only 16 pages" yet "worked well for over 200 years." Let's take a look at the Seventh Amendment thereto:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

(See the link for primary sources on the Amendment.)

I don't know what Mr. Howard thinks the words "common law" and "rules of the common law" mean there, but to the Framers of the Constitution, "common law" referred to hundreds of years of confusing — and sometimes contradictory — English court opinions.

So much for simplification.

But simplification isn't really what Mr. Howard wants; he wants to get rid of "the right of trial by jury."

That's not "rebuilding" freedom, nor is it "restoring" the way the Founders intended the civil justice system to work. It is a rescission of the freedoms guaranteed by the Seventh Amendment, which expressly preserved the same right to jury trial that was embodied in the Magna Carta and was recognized long before.

Indeed, the English "common law" of which the Framers were so enamored did not give judges any "authority" to usurp the fact-finding role of the jury. Mr. Howard claims that he wants to give judges the power "to apply law," but they have always had that power -- what Mr. Howard really wants is to give judges the power to determine facts, a power that the Framers of the Constitution expressly denied them.

Mr. Howard doesn't want to fix the legal system, he wants to break it.

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It's no secret: plaintiffs like state court and defendants like federal court.

The reasons include: 

• federal juries, by virtue of their larger geographic range, include fewer urban jurors and more rural jurors, and thus (according to lawyers' lore) will award lower verdicts;
• the Federal Rules of Civil Procedure place express limits on the amount of discovery available;
• federal courts are (and were even before Ashcroft v. Iqbal) more prone to grant motions to dismiss (and motions for summary judgment) than state courts.

Even if a plaintiff files their lawsuit in state court, the defendant can "remove" the case to federal court if the case could have been filed in federal court.

There are two ways a case 'could have been filed in federal court': first, if the claim arises under federal law; second, if all plaintiffs and all defendants are citizens of different states. The latter is called "diversity" jurisdiction, and it has a long history of being "disfavored" by federal courts. As I wrote before, in discussing one of the games defendants play to remove cases, "much like how we prefer federal courts preside over cases bringing federal claims, we prefer state courts preside over cases bringing state claims."

So how do we determine of which States a corporation is a "citizen?" 28 U.S.C. § 1332(c)(1) says, "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business."

Incorporation is simple enough; all corporations are incorporated in one, and only one, state, most commonly Delaware.

But where is the corporation's "principle place of business?"

The Supreme Court's answered that question yesterday in Hertz Co. v. Friend et al. Here's the facts from the opinion, with substantial edits for clarity by yours truly:

In September 2007, Melinda Friend and John Nhieu, two California citizens, sued the Hertz Corporation in California state court for violations of California’s wage and hour laws as part of a potential class action on behalf of other California citizens similarly-situated to them.

Hertz removed the case to federal court claiming that the plaintiffs and the defendant were citizens of different States, and thus the federal court had diversity jurisdiction over the claims. Friend and Nhieu, however, claimed that the Hertz Corporation was a California citizen, like themselves, and that, hence, diversity jurisdiction was lacking.

To support its position, Hertz submitted a declaration by an employee relations manager that claimed Hertz’s “principal place of business” was in New Jersey, not in California, because — though its California operations accounted for 273 of Hertz’s 1,606 car rental locations, about 2,300 of its 11,230 full-time employees, about $811 million of its $4.371 billion in annual revenue and about 3.8 million of its approximately 21 million rentals — the leadership of Hertz and its domestic subsidiaries is located at Hertz’s corporate headquarters in Park Ridge, New Jersey, where its core executive and administrative functions are carried out, except for some lesser, but still substantial, administrative operations in Oklahoma City, Oklahoma.

Let's start with the big picture: this case has no business being in federal court. It's a class action brought solely by California residents alleging solely California-law claims against a company that has more business in California than anywhere else. None of the concerns underlying federal jurisdiction are present. There is no reason to believe that Hertz would be prejudiced by having the case heard by a California state court, and there are no federal issues in the case.

As the Supreme Court noted yesterday, two-hundred-and-one years ago, the Supreme Court, in a unanimous opinion by Chief Justice Marshall, scoffed at the very notion that a corporation was a "citizen" entitled to diversity jurisdiction: “the term citizen ought to be understood as it is used in the constitution, and as it is used in other laws. That is, to describe the real persons who come into court, in this case, under their corporate name.” Bank of United States v. Deveaux, 5 Cranch 91–92 (1809); see Slip op., p.5. If that was the law today, Hertz would not be entitled to remove any state-law case from any state court, since it would be a "citizen" everywhere.

But that was then, this is now. The statute we have today says Hertz is a citizen "of any State by which it has been incorporated and of the State where it has its principal place of business." If Hertz is sued anywhere else, it can remove the case to federal court. So where is its "principle place of business?"

Prior to the Hertz opinion yesterday, the answer depended upon the Circuit in which the case was brought. Friend's case was brought in the Ninth Circuit,

which instructs courts to identify a corporation’s “principal place of business” by first determining the amount of a corporation’s business activity State by State. If the amount of activity is “significantly larger” or “substantially predominates” in one State, then that State is the corporation’s “principal place of business.” If there is no such State, then the “principal place of business” is the corporation’s “‘nerve center,’” i.e., the place where “‘the majority of its executive and administrative functions are performed.’”

Slip op., p. 3. Other courts, like those in the Seventh Circuit, jumped straight to the "nerve center" approach.

Yesterday, the Supreme Court held that the "nerve center" test is the only test, that "the phrase 'principal place of business' refers to the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities." Slip op., p. 1.

The opinion is a classic example of Justice Breyer's methodology; long on "administrative simplicity" (p. 13), short on the plain meaning rule. I will leave, as an exercise for the reader, the question of whether the Court's unanimous opinion is consistent with the originalism and formalism pressed by four, sometimes five, members of the Court.

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Felix Salmon at Reuters caught something interesting:

[T]he facts of the case are pretty clear. The relationship between JP Morgan and Televisa goes back decades, and so JP Morgan was the natural choice for Televisa to turn to when it decided to buy a fiber-optic cable company called Bestel for $325 million, $225 million of which was to come from Televisa subsidiary Cablevisión.

JP Morgan intended to syndicate the loan, but the timing was bad: the deal closed in 2008, when credit markets were all but closed, and as a result JP Morgan ended up owning all of it. After an attempt by Televisa to help JP Morgan syndicate the loan fell through, JP Morgan then turned to Inbursa, Carlos Slim’s bank.

This was not an obvious choice from the point of view of serving one’s client. Slim and Cablevisión compete fiercely in the telecommunications space, where Slim is the dominant monopolist and Cablevisión is selling telephony and internet access in competition with him. And the rivalry is all the tougher due to the history between the two groups: Slim used to be a major shareholder in Televisa, and to this day Inbursa owns a 22% stake in Cablevisión.

Now there were two ways of selling this loan: JP Morgan could either assign it to Inbursa, which would require Cablevisión’s permission, or else it could participate it to Inbursa, which would not. At first, JPM tried to assign the loan, but unsurprisingly Cablevisión refused to grant their permission for that deal to happen.

You can imagine what happened next: JP Morgan dressed up the "assignment" as a "participation." As Judge Rakoff described it in his order,

JP Morgan, acting in bad faith, used the guise of a purported “participation” to effectuate what is in substance a forbidden assignment, with unusual provisions demanded by Inbursa that are calculated to give Inbursa exactly what the assignment veto in the Credit Agreement was designed to prevent. JP Morgan thereby violated, at a minimum, the covenant of good faith and fair dealing automatically implied by law in the Credit Agreement…

Televisa's request for a preliminary injunction halting the agreement was thus granted.

Salmon wonders what JPMorgan's response to all these allegations is:

So for JP Morgan’s side of the story, all I have to go on is their 40-page memorandum of law in the case, which is quite narrowly legalistic, which was roundly rejected by Rakoff, and which obviously can’t respond to Rakoff’s ruling since it was filed before Rakoff made his ruling.

Since JPMorgan moved for summary judgment pursuant to Fed. R. Civ. P. 56, they, like Televisa, were entitled to submit affidavits in support of their position, and it appears they submitted declarations from "Sheldon L. Pollock" and "Jaquelina Truzzell." Both declarations have been unsealed by Judge Rakoff's order, but neither is on the docket.

I doubt the declarations say much; JPMorgan's memorandum of law primarily references the Pollock and Truzzell declarations when discussing side matters, like telephone calls and Televisa's motives for opposing the assignment / participation. Truzzell apparently affirms there are "no side agreements" with Inbursa and that JPMorgan would not release "confidential" information, but that's it. There's nothing about how JPMorgan came to participation terms with Inbursa that, at least on their face, entitle Inbursa to a treasure trove of information about Televisa, far more than provided by JPMorgan's standard participation agreement.

Which I find telling. Though the standard response of most defendants is — for tactical reasons like avoiding getting pinned down to a particular version of events — to "deny and delay" rather than to come forth with an affirmative opposition, under the facts here, JPMorgan really needed to make a better showing. Here's the full quote (excerpted above) from Judge Rakoff's order:

In opposing a preliminary injunction, JPMorgan argues that the Participation Agreement is technically consistent with the Credit Agreement. Superficially, this may be correct. For example, with respect to Cablevisión’s concerns about confidential information, the Credit Agreement permits disclosure of information about the borrower, not just to assignees (who can be vetoed) but also to participants (who cannot), provided that such information is given on a confidential basis. Credit Agreement § 9.16(f)(i). This includes “all information received from the Borrower . . . relating to the Borrower, any of its Related Parties or their respective businesses.” Id. § 9.16. Similarly, there is no express restriction in the Credit Agreement on providing a participant with its pro-rata share of fees received by the lender or an option of first refusal for any further transfer of the loan. Finally, under the Credit Agreement, assignment of the loan without borrower consent is expressly permitted when there is an Event of Default. Id. § 9.04(b)(i).

But this narrow focus obscures the gist of Cablevisión’s argument, which is that JPMorgan, acting in bad faith, used the guise of a purported “participation” to effectuate what is in substance a forbidden assignment, with unusual provisions demanded by Inbursa that are calculated to give Inbursa exactly what the assignment veto in the Credit Agreement was designed to prevent. JPMorgan thereby violated, at a minimum, the covenant of good faith and fair dealing automatically implied by law in the Credit Agreement.

The Court agrees.

JPMorgan could have done more factually, rather than just legally, to rebut the appearance of bad faith. But they didn't; they just argued that they were entitled to do what they did, rather than show that their conduct with Inbursa was appropriate.

Such silence could be, in part, an attempt by JPMorgan to protect Inbursa's confidences, which arguably would have been appropriate. (I say "arguably" because the totality of the circumstances here — primarily Inbursa's attempt to negotiate terms more favorable than those typically provided by a participation agreement — imply that Inbursa has waived its right to keep those discussions confidential from Televisa.) But there's nothing on the docket reflecting an attempt to have Judge Rakoff review any pertinent materials in camera, and so there's no reason for us to speculate that JPMorgan's silence was a product of confidentiality.

It thus may be more appropriate to speculate that JPMorgan's silence was the product of not having a good defense. Again: facts win cases. "Technically consistent" legal arguments don't.

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[UPDATE: The WSJ Law Blog has copies of the letters submitted to the Delaware Chancery Court. Professor Hazard is undoubtedly one of the pre-eminent experts in the field, and he makes a compelling argument that Cravath violated the Rules of Professional Conduct. Yet, showing a violation of the Rules is not enough — to disqualify counsel under Chancellor Chandler's standard, Airgas will have to show the violation will "materially advance" Air Product's position or undermine the fair and efficient administration of justice. So far, I haven't seen anything demonstrating that. The vague references made so far to Cravath's insider knowledge of Airgas's finances isn't enough, since a firewall within Cravath can likely cure that problem.

UPDATE II: As predicted, the Eastern District of Pennsylvania declined to enter an injunction against Cravath, and the Delaware Chancery Court did not disqualify them.]

As has been reported all over the legal media,

Industrial gas producer Airgas filed suit against Cravath, Swaine & Moore on Friday over the firm's role as legal adviser to rival Air Products on that company's $5.1 billion bid for Airgas.

... Air Products filed a complaint on Thursday in Delaware's Chancery Court against Airgas, claiming that the smaller company improperly blocked its board of directors from considering previous Air Products takeover offers. Cravath litigation partners Francis Barron, David Marriott and Gary Bornstein are representing Air Products in the Delaware litigation along with local counsel Kenneth Nachbar (he of sports gambling notoriety) and Jon Abramczyk from Morris, Nichols, Arsht & Tunnell. (Click here for the Chancery Court complaint, courtesy of The Times' Dealbook.)

Airgas responded by retaining Cozen O'Connor chairman Stephen Cozen, litigation chair Jeffrey Weil and litigation partner Thomas Wilkinson Jr., for a civil suit against Cravath in state court in Pennsylvania. In the suit, Airgas claims that Cravath has a conflict of interest and breached its fiduciary duty by representing Air Products because it previously advised Airgas on several financings. According to Airgas' complaint against Cravath, the company has had a client relationship with the firm for 10 years and has paid Cravath about $2 million, including a $320,000 payment last October.

There's an obvious question dangling over the Pennsylvania suit filed by Airgas: what basis — or power — does a state court in Pennsylvania have to preclude a New York law firm from representing a Delaware-registered company in Delaware state court litigation against another Delaware-registered company?

Unsurprisingly, that's just what Philadelphia Court of Common Pleas (Commerce Court) Judge Albert Sheppard Jr. wondered before denying Airgas' petition for a temporary restraining order:

In essence, I would be saying to a lawyer you can’t go to Delaware and represent your client. I find that difficult. I don’t want to do that.

Judge Sheppard only had it for two weeks, though, since Cravath, like virtually every out-of-state defendant, promptly removed the case to Federal court, i.e. the Eastern District of Pennsylvania, where it was assigned to Judge Eduardo Robreno (whose work in the Philadelphia Inquirer bankruptcy I've covered before).

Cravath (represented by a team at Conrad O'Brien*) has responded to the suit and has asked Judge Robreno to abstain from hearing the case at all:

First, whatever this Court may ultimately decide with respect to Airgas’s claim for money damages, Airgas’s request for a preliminary injunction is the functional equivalent of a motion to disqualify Cravath from appearing before the Delaware Chancery Court. With all due respect, Cravath submits that a motion precluding counsel from appearing in Delaware Chancery Court is more appropriately decided by Chancellor William B. Chandler III, who presides over the firstfiled Delaware litigation. Just as this Court has full authority over proceedings here, judicial comity warrants according Chancellor Chandler due authority over proceedings in his courtroom. ...

Second, the Delaware Chancery Court is aptly suited to decide the key issue presented by Airgas’s petition to this Court—whether Cravath should be disqualified. Indeed, the dispute concerning Cravath’s ability to represent Air Products is intertwined with the merits of the (firstfiled) Delaware litigation. ...

Third, whereas this Court’s ruling on Airgas’s petition for preliminary relief would be, by definition, provisional, the Delaware Chancery Court’s ruling on the question of whether Cravath should be disqualified will be a final decision on the merits.

(From Cravath's brief, available on RECAP.)

It's hard to argue with that; whatever the merits of the conflict-of-interest allegations, it seems they all relate to the Delaware litigation and so should be decided there.

Of course, there's a reason Cravath wants the case decided in Delaware's Chancery Court (and why Airgas wants it decided elsewhere). As Francis G.X. Pileggi notes:

[Airgas'] separate suit alleging a conflict was filed in Philadelphia. One might speculate that the suit was not filed in Delaware and it was not filed as a motion to disqualify, because the Delaware decisions recently have not granted many motions to disqualify. See, e.g., cases summarized on this blog here.

Indeed, one might speculate that. More on that in a moment.

Back in Delaware, it seems a war of correspondence has broken out:

Airgas (which has retained Wachtell, Lipton, Rosen & Katz) began the exchange of correspondence Monday, when it sent a letter to Chancellor William Chandler at Delaware's Court of Chancery ... In its Monday letter to Chandler, Airgas argues that a Pennsylvania courtroom is the proper place for the Cravath hearing. In response, Air Products and local counsel Kenneth Nachbar of Morris, Nichols, Arsht & Tunnell drafted their own letter to Chandler, urging him to decide on Cravath's fate in Delaware and accusing Airgas of trying to "circumvent" Chandler's authority by suing in Pennsylvania.

Airgas also has enlisted a legal ethics expert who has issued an opinion letter in which he claims Cravath was working under "a clear and serious conflict of interest" while it was helping Air Products formulate its takeover bid last fall, according to a copy of the letter obtained by The Am Law Daily. In his letter, Geoffrey Hazard Jr., a professor at the University of Pennsylvania Law School, says Cravath ... violated the so-called "hot potato" rule, which holds that a firm cannot get out of a conflict simply by dropping one client on short notice, Hazard wrote.

Like I wrote before, the hot potato rule lives. Here's a recent recitation of the rule:

Courts that have considered the issue have held that a firm will not be allowed to drop a client in order to shift resolution of the conflicts question from Rule 1.7 dealing with current clients, to the more lenient standard in Rule 1.9 dealing with former clients.

El Camino Res., LTD. v. Huntington Nat'l Bank, No. 1:07-cv-598, 2007 U.S. Dist. LEXIS 67813, at *39–40 (W.D. Mich. Sept. 13, 2007).

On the surface, that's not good for Cravath — if Chancellor Chandler applies a similar analysis, then Cravath will be evaluated as if it was simultaneously representing Airgas and Air Products on both sides of the litigation, which is expressly prohibited by the Delaware, Pennsylvania and New York rules.

But the final analysis is a practical one:

The finding of an ethical violation, however, does not automatically require disqualification. The court should order disqualification only where some specifically identifiable impropriety has actually occurred and the balance of relevant factors requires vindication of the integrity of the legal profession over defendant's interest in retaining counsel of its choice.

Id.

Returning again to why Cravath wants the issue decided in Delaware by Chancellor Chandler, it bears mention here that Chancellor Chandler took a strongly disqualification-unfriendly view in a similar case a year ago, in which Dow Chemical attempted to disqualify Wachtell from representing Rohm and Haas:

I am not persuaded that Wachtell’s access to this information will materially advance Rohm and Haas’s position or undermine the fair and efficient administration of justice. Dow’s defense to specific performance is that conditions in the market and within Dow have changed significantly since December 2008 and that it is no longer feasible for the merger to close. Dow has failed to convince me that the information Wachtell had access to regarding Dow’s strategies and asset values in 2006 and 2007 will substantially advance the interest of Rohm and Haas in this litigation. Additionally, Wachtell has assured the Court that its attorneys who obtained confidential Dow information have not and will not share Dow’s client confidences with the Wachtell attorneys working on this matter. While Dow is correct that the ethical rules impute knowledge of one attorney to other attorneys in the firm, the issue before the Court is not whether there was a violation of the ethical rules. To justify disqualification, the Court must find that allowing the representation to continue would threaten the fair and efficient administration of justice, a threat that is greatly reduced by a credible representation to the Court that the firm will ensure that the attorneys working on this matter do not have access to Dow’s client confidences. Dow has failed to point to information or confidences obtained by Wachtell in its 2006-2007 work for Dow that will have a material influence on the proceedings before me today.

Rohm and Haas Co. v. Dow Chem. Co., No. 4309-CC, 2009 WL 445609, at *3 (Del. Ch. Feb. 12, 2009)(also courtesy of Pileggi).

Truth be told, there's not much distinguishing the Rohm and Haas v. Dow situation from the present case with Cravath, except for the "hot potato" rule aspect, given how Cravath's work for Airgas was much more recent than Wachtell's work was for Dow. Indeed, it seems Cravath's work for Airgas unambiguously overlapped its work for Air Products.

As noted above, though, a mere violation of the rules isn't enough; the question is what prejudice the former client will suffer and if that prejudice can be avoided. Cravath's work for Airgas was comparatively small, and if Cravath sets up an ethical firewall that keeps the former Airgas attorneys away from the Air Products lawsuit, that will likely be enough to satisfy Chancellor Chandler.

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As The Recorder reported,

Four states and dozens of California cities and water districts have joined a qui tam lawsuit, unveiled this week, seeking millions of dollars in damages against a company for allegedly supplying customers with substandard PVC pipe.

The suit, brought against J-M Manufacturing Co. and its former parent company, Formosa Plastics Corp., alleges that J-M sold PVC pipe that had tensile strength below industry standards, and that the company deceived customers by choosing stronger samples for independent certification of its product. The suit also contends that under the company president, Walter Wang, it "implemented a series of 'cost-cutting' measures that undermined the quality of J-M's PVC pipe products," including filling supervisory positions with less experienced managers.

In one corner, we have the Defendants:

"At JM Eagle, we stand 100 percent behind the quality of our products," said spokesman Marcus Galindo. "Any claim that Mr. Wang or anyone at JM Eagle sacrificed the quality of our product for profit is ludicrous. We're a company that cares about more than just the bottom line."

According to the complaint, Hendrix was fired a week after he wrote a memo informing management that the tensile strength of the PVC pipe was below the standard required by independent certification agency Underwriters Laboratories Inc.

Galindo discounted that claim, saying outside agencies make unannounced visits to the company's plants to perform regular audits of its products.

Further, Galindo noted, over the three years that the federal government investigated the claim, it "never stopped purchasing pipe from us. They have decided not to move forward and intervene in this case."

In the other corner, we have Phillips & Cohen LLP's press release:

Nevada, Virginia, Delaware, Tennessee, San Diego, Sacramento, San Jose, the Los Angeles Department of Water and Power and 39 other California municipalities and water districts have joined a whistleblower lawsuit seeking millions of dollars in damages from JM Eagle and its former parent company, Formosa Plastics Corp. (USA), for supplying their water and sewer systems with pipes that JM knew were substandard. ...

"The decisions by so many states, cities and water districts to join this case show just how serious these allegations are," said Mary A. Inman, a San Francisco attorney with Phillips & Cohen LLP, which represents the whistleblower, the Commonwealth of Virginia, the State of Tennessee and 25 California cities and water districts. "With government entities struggling to meet their budgets, it's particularly important for them to recover their losses from any fraud."

As a result of the investigation into the quality of PVC pipe that JM Eagle has provided, the Nevada Department of Public Works, the cities of San Diego and Sparks, Nevada, as well as at least three water districts in Nevada and California (Truckee Meadows Water Authority, North Marin Water District and Alameda County Water District) have removed JM products from their approved-products lists for purchases.

In a case of this size, a government's decision to intervene or not is more political than legal. I don't mean that in a pejorative sense: when a government brings a multi-million-dollar lawsuit against one of its major suppliers, there's a lot more at stake than a settlement or judgment.

It's thus hard to read the tea leaves on the differing federal and state decisions. I'm sure the plaintiff's lawyers are quick to remind that the federal government usually does not intervene, and that the non-intervention is likely a product of limited resources and the federal government's belief that the state intervention (and the experience of the plaintiff's counsel) will ensure the claims are prosecuted in a diligent and thorough manner.

On the flip side, I'm similarly sure the defendants' lawyers consider the state interventions nothing more than cash-strapped states looking for "jackpot justice" from a profitable business.

An interesting one to watch, not least because the plaintiff's claims are predicated entirely upon violation of third-party standards and codes (e.g., Underwriters Laboratories, American Water Works Association, American Society for Testing and Materials, and FM Approvals) that are incorporated into the government contracts.

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