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

Breach of fiduciary duty class actions under the Employee Retirement and Income Securities Act ("ERISA") are as common as the day is long. If an employee pension plan loses a lot of value, odds are good there will be a lawsuit.

Unsurprisingly, the federal courts have clamped down on these lawsuits over the years. As the United States Court of Appeals for the Third Circuit (Pennsylvania, New Jersey and Delaware) just reaffirmed,

in the context of an ERISA plan that offers employees the option of investing in a fund consisting solely of the employer's own securities, there is a "presumption that a fiduciary acted prudently in investing in employer securities" and that, to rebut the presumption, "a 'plaintiff must show that the ERISA fiduciary could not have believed reasonably that continued adherence to the [Plan's] direction was in keeping with the settlor's expectations of how a prudent trustee would operate.'"

Ward v. Avaya Inc., (3d Cir. 2008, November 13, 2008, Jordan, J.)(on appeal from the District of New Jersey). The Third Circuit again rejected that "a company to be on the brink of bankruptcy before a fiduciary is required to divest a plan of employer securities," but held, in essence, that if the plaintiffs cannot show the stock plummeting and staying in the gutter, then they cannot win as a matter of law. In holding the plaintiffs cannot overcome the presumption as a matter of law, the Court describes:

At the outset of the class period immediately following the spin-off on September 30, 2000, Avaya's stock traded at $ 22.18 a share. As Ward takes pains to point out, it initially lost much of that value, and by August 2, 2002, after fluctuating significantly for some time, it reached a low of $ 1.15 a share. By April 25, 2003, the day after Ward's Count II class period ended, Avaya stock was trading at $ 3.24 per share. Following the end of the class period, however, Avaya's stock continued to rise and, by August 2003, was trading at around $ 10.00 a share. Between October and December 2003, the stock was trading between $ 12.00 and $ 14.00 a share. During 2004, Avaya stock usually closed at between $ 12.00 and $ 16.00 a share. Commensurate with its rising stock price, Avaya reported significant positive net income in 2003 and 2004. Further, like the plaintiff in Edgar and unlike the plaintiff in Moench, Ward's complaint fails to point to anything other than Avaya's financial struggles to support his breach of fiduciary duty claim.

The frustrating part here is that of course the plaintiff had no direct evidence, their case was dismissed under Fed.R.Civ.P. 12(b)(6) before they could conduct discovery. The message from the Third Circuit is thus loud and clear: if the company's stock has regained a substantial portion of its value, don't bother filing suit.

I have plenty of sympathy for the defendants here, directors who almost certainly did, in fact, believe they were simultaneously acting in the best interests of the company and the retirement plan beneficiaries. No could blame them for believing in the eventual success of their own company, and the company did, in fact, regain at least two-thirds of its prior market value, more than 10 times its lowest value just two years prior to that.

But that's precisely the problem -- of course the directors will believe in the eventual success of their own company. Indeed, aside from company officers, who could possibly be less objective about their own company? They're supposed to believe in the company's success, even against the odds.

The core problem, as the Third Circuit noted, is that "as the financial state of the company deteriorates … fiduciaries who double as directors of the corporation often begin to serve two masters. And the more uncertain the loyalties of the fiduciary, the less discretion it has to act." At what point should we expect that a "prudent" director will recognize their own lack of objectivity and step aside? The answer from the Third Circuit appears to be "never," at least not if the stock has regained substantial value.

Maybe, on balance, that makes the most sense, a "no serious harm, no foul" rule. The stock market is inherently unpredictable; if, for example, the directors had moved assets out of Avaya in the spring of 2003, the retirement fund likely would have missed out on Avaya's dramatic rise in the fall and winter of 2003. You don't invest your money in a 100% company fund to go willy-nilly at the first sign of trouble.

Nonetheless, though there are many plausible legitimate explanations, it's troubling to see issues like that decided on a motion to dismiss, denying plaintiffs the chance to see what the explanation actually was. The directors here could have completely breached their fiduciary duties and, after getting 'lucky,' still have cost beneficiaries one-third of their pension's value, potentially even more when compared to the fund's hypothetical value if it had been managed properly. Yet, the case was over before it started, merely because the fund lost 'only' one-third of its value as compared to value on the plaintiff's class certification date.

Finally, just how common are ERISA breach of fiduciary suits? So common that the Third Circuit held plaintiffs claims were also barred by a prior class action settlement in Reinhart v. Lucent Technologies, Inc., 327 F. Supp. 2d 426 (D. N.J.).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

This time in New Jersey, as described at Electronic Discovery Law:

State v. M.A., 954 A.2d 503 (N.J. Super. Ct. App. Div. 2008)

In this case of first impression in New Jersey, defendant argued that personal information found on his work computers should be suppressed because his employer had no authority to consent to the search. ...

Rejecting his arguments as “implausible”, the court found ownership properly resided with the employer in light of several facts, including, among other things, the employer’s payment for the computers, the placing of the laptop on the depreciation schedule of the employer’s corporate tax returns and the specific instruction to defendant that all computers were company property.  Accordingly, the court upheld the validity of the warrantless search and denied the defendant’s motion to suppress.

Not the first such holding and certainly not the last.

It bears repeating again and again: if you keep non-work materials on your computer, or send/receive "personal" e-mail on your work servers, you are taking a risk of either waving attorney-client privilege or consenting to a warrantless search.

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Over at the wonderful gCaptain blog:

While traveling to destinations around the world my setup is a black macbook (however, due to an unfortunate incident involving wine it is now the new macbook) and my iPhone. I tend towards lengthy email replies when using the Macbook so I much prefer the iPhone to make them short and quick.

On the ship my primary computer is a windows box which I need for my day job. Because of restricted permissions I rely heavily on a Portable Application Suite I launch from my waterproof USB drive and VNC to access my office computer. 

 

...

I work a schedule of 3 weeks at work and 3 weeks home so I get 6 months vacation per year. To facilitate this each position on the ship is filled by two people, the person on and the person off. This is nice because while at home my relief answers all emails, phone calls, ect., leaving me 100% disconnected from work. But regardless of where in the world my ship is located on the globe I must fly to it every 3 weeks. Staying connected on the road is important. To accomplish this I have set-up a custom SSH tunnel solution that I use with Apple Remote Desktop to connect back to my office network. I also have setup automatic back-ups with the Amazon S3 based app JungleDisk and use Transmit to retrieve my files. Storage is important while traveling  so I cloned my MacBook‚ hard drive using SuperDuper and replaced it with a 250gb laptop hard drive.

More at the site, including his favorite apps -- a list very similar to my own. E.g., TrueCrypt is the way to secure files.

In fact, his Mac-travel, PC-work, dual-monitor & setup is quite familiar to me, though I use 37signal's Backpack for GTD / task management, plus digital dictation and voice recognition given the volume of paperwork I create. I'm also content with FreeMind over Mind Manager for mind mapping.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Carolyn Elefant kicks off a discussion on "The Deterioration of Legal Writing," beginning with a Financial Week story, concluding:

While I believe that both factors -- the informality of e-mail and lack of quality teaching -- have contributed to the decline of legal writing skills today, I think the main problem is  the easy availability of low-cost, computerized legal research tools. These days, both students and lawyers can gorge on a glut of cheap reference sources, from today's less expensive LexisNexis and Westlaw, to tools like Casemaker or Versuslaw, to Google and other Internet search engines. Consequently, legal research has devolved into an exercise in "piling on", with lawyers adding cases and quotes merely to show strength through quantity of cases rather than quality.  At the end of the day, with so many resources available, legal analysis is suffering, and as a result, so too is the quality of legal writing, which relies on the quality of the underlying analysis for its impact and effectiveness. 

Evan Schaeffer chimes in with links to many of his great legal writing posts.

I had two "legal writing" classes in law school. Both were terrible; I encountered one teacher later who said she was glad to have moved back to consulting because it was "more funner" than teaching.

I'm not kidding.

Two points.

First, I challenge the notion that today's law students write any worse than their predecessors. It may be true, but I have seen no objective evidence of that. Complaints about writing ability are common for all employers, and complaints about the upcoming generation are as old as written history. Take this complaint:

On the matter of overwork they are particularly stern. They want to work hard, but not too hard; the good, equable life is paramount and they see no conflict between enjoying it and getting ahead. The usual top executive, they believe, works much too hard, and there are few subjects upon which they will discourse more emphatically than the folly of elders who have a single-minded devotion to work. Is it, they ask, really necessary any more? Or, for that matter, moral?

....Out of necessity, then, as well as natural desire, the wise young man is going to enjoy himself — plenty of time with the kids, some good hobbies, and later on he'll certainly go for more reading and music and stuff like that. He will, in sum, be the apotheosis of the well-rounded man: obtrusive in no particular, excessive in no zeal.

That's from 1956; Kevin Drum dug it up in response to an article just posted that was virtually identical.

Second, while great legal writing requires a career-long dedication to excellence, not-bad legal writing just requires keeping in mind a couple points:

1. There may be rules for the formatting of legal arguments, but there are no rules for the content — do not force the content of your writing into an artificial form.
    
2. Remember and use the twenty-odd years of writing education that preceded law school. Write sentences in which nouns perform specific actions upon direct objects. Use topic headings and thesis sentences and appropriate paragraph divisions. Present information in a logical form. Read what you wrote aloud; does it sound confusing? If so, then it's confusing to read, too.
    
3. The very worst examples of legal writing are the edits of cases in law school textbooks. Judges usually do not write opinions with frequent leaps in logic, sentence fragments, and the generous use of the ellipsis.
    
4. The second worst examples of legal writing are Supreme Court opinions, which are the product of a delicate compromise amongst multiple Justices and which are deliberately limited in scope so as not to exceed the actual holding.
    
5. The third worst examples of legal writing are law review articles, which must conform to multiple literary conventions that have nothing to do with ease-of-reading or persuasion.
    
6. The best examples of legal writing that are easily accessible are trial court and intermediate appellate court opinions. These opinion state facts and then apply them to law, with little interference (at least apparent on the face of the opinion) from politics or compromise or convention.

In short, writing not-bad requires reading a few short books on writing, like Strunk & White's Elements of Style and Joseph M. Williams' Style, then reviewing some basic court opinions, and then applying the same principles to your own work.

Finally, never be afraid to disregard your writing instructor's advice; odds are they're looking to move on to something "more funner" anyway.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Good news for everyone:

The agreement also resolves lawsuits that were brought against Google in 2005 by a group of authors and publishers, along with the Authors Guild and Association of American Publishers (AAP). While Google, the Authors Guild and the AAP have disagreed on copyright law, we have always agreed about the importance of creating new ways for users to find books and for authors and publishers to get paid for their works.

...

With this agreement, in-copyright, out-of-print books will now be available for readers in the U.S. to search, preview and buy online -- something that was simply unavailable to date. Most of these books are difficult, if not impossible, to find. They are not sold through bookstores or held on most library shelves, yet they make up the vast majority of books in existence. Today, Google only shows snippets of text from the books where we don't have copyright holder permission. This agreement enables people to preview up to 20% of the book.

What makes this settlement so powerful is that in addition to being able to find and preview books more easily, users will also be able to read them. And when people read them, authors and publishers of in-copyright works will be compensated. If a reader in the U.S. finds an in-copyright book through Google Book Search, he or she will be able to pay to see the entire book online. Also, academic, library, corporate and government organizations will be able to purchase institutional subscriptions to make these books available to their members. For out-of-print books that in most cases do not have a commercial market, this opens a new revenue opportunity that didn't exist before.

...

As part of the agreement, Google is also funding the establishment of a Book Rights Registry, managed by authors and publishers, that will work to locate and represent copyright holders. We think the Registry will help address the "orphan" works problem for books in the U.S., making it easier for people who want to use older books. Since the Book Rights Registry will also be responsible for distributing the money Google collects to authors and publishers, there will be a strong incentive for rightsholders to come forward and claim their works.

In addition to expanding the commercial market for these books, Google, the authors and the publishers have worked hard with our library partners at Stanford, the University of Michigan, the University of California and the University of Wisconsin-Madison to ensure this agreement advances libraries' efforts to preserve, maintain and provide access to books for students, researchers and readers. The agreement gives public and university libraries across the U.S. free, full-text viewing of books at a designated computer in each of their facilities. That means local libraries across the U.S. will be able to offer their patrons access to the incredible collections of our library partners -- a huge benefit to the public.

The agreement also authorizes Google and the libraries to create new services that will help people with disabilities such as visual impairment better experience these books. We are grateful to our library partners for investing so much painstaking effort over so many years to maintain their book collections, and we are excited at the prospect of their participation in this landmark project.

You can read the 300+ page settlement agreement here.

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Mark Cuban has a new project, BailoutSleuth, "to help ensure that the [bailout] process, including the selection and compensation of contractors, is as transparent as possible."

I am shocked and surprised to tell you the transparency is already inadequate:

 

The Treasury Department has hired three outside firms this week to help administer its $700 billion, taxpayer-funded bailout of troubled banks. But some key details of those contracts remain a mystery.

 

The agreements with Bank of New York Mellon Corp. and Simpson Thacher & Bartlett LLP that the Treasury Department posted on its web site each had blacked-out paragraphs in the sections dealing with compensation.

 

The government's three-year contract with Bank of New York Mellon does not show how much the company will be paid to act as the master custodian of the bailout fund. The contract says that the bank will be paid a monthly fee, but that fee is blacked out.

 

The Treasury Department's six-month deal with Simpson Thacher for legal advice on equity purchases in U.S. banks has a value of $300,000. But the contract posted on the Treasury Department's web site Thursday did not show the hourly rates the government will be paying the firm. The figures for all the employee classifications, from partner to legal assistant, were redacted.

 

While we're at it, can I get a conflicts list before Foxes & Wolves, LLP, is given the keys to the hen house? Some of us clients are not so understanding.

 (via Open Congress)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Another great post at Build A Solo Practice, LLC:

Do you know how your potential client will find you?  Have you done a survey of your existing clients or studied secondary information if you are just starting out to determine the best marketing/advertising vehicles to reach them?  With money tight, the scatter shot approach is foolish and wasteful of scarce resources.  The old approaches may just not be effective at all.

Here are some interesting statistics for you.

The statistics are worth reviewing,  particularly the rapid decline of the yellow book as a source for finding lawyers, which nicely dovetails Susan's next post on worthless lawyer directories.

In my experience, clients find you one of three ways:

1. they already know you,
2. they stumble upon you, or
3. they are recommended to see you.

That is to say, the client either knows you, knows nothing of you before asking for your help, or they ask someone they do know for help and that person recommends they go to you.

I deliberately used the word "stumble." It's hard to say that a client ever seeks you out unless they already know you, even if they spend several days googling around for information on attorneys, because clients who don't have an attorney in mind usually want "the best" yet they rarely have the information to know who is "the best."

Heck, I don't even know who is "the best" in my own field, much less in any other. Very, very little information is available to clients except for bits and pieces or word-of-mouth.

As such, I have three marketing goals:

1. improve my favorability among my clients,
2. increase the likelihood of being stumbled upon (and looking good when that happens), and
3. improve my favorability and visibility among the likely recommenders (e.g., referral counsel).

Will it work? I don't know — 4 and 5 of that plan feel a lot like:

        4.  ???
        5.  PROFIT!

At least it's cheaper than a directory, professionally fulfilling, and a lot more fun. Got any better ideas?

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

If you've ever done business or commercial litigation, you've done tortious interference with contractual / business relations. It's alleged virtually every time a party switches suppliers or customers, and virtually every time the lawsuit involves more than two parties.

But did you know you can claim non-pecuniary damages (so long as you have some economic damages) and get an injunction  before the damage occurs?

From the Eastern District of Pennsylvania:

The damages element of a claim for intentional interference with contractual relations (the fourth element) requires a plaintiff to prove that the alleged interference has caused an actual pecuniary loss, the benefits of which flowed from the contract itself. Although an actual pecuniary loss must be established, non-pecuniary harms are also recoverable under this tort. Shiner v. Moriarty, 706 A.2d 1228, 1239 (Pa.Super. 1998); Perry v. H&R Block Eastern Enterprises, Inc., 2007 U.S. Dist. LEXIS 22406, 2007 WL 954129, at *10 (E.D.Pa. March 27, 2007)(McLaughlin, J.).

Moreover, the actual pecuniary loss requirement does not defeat actions for tortious interference with contractual relations, such as this one, which seek to enjoin the interfering conduct before it is successful. In Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 482 Pa. 416, 436 n.21, 393 A.2d 1175, 1185 n.21 (1978), the Supreme Court of Pennsylvania specifically held that notwithstanding the actual pecuniary loss requirement, "[i]t  is well settled that equity will act to prevent unjustified interference with contractual relations." See also Restatement (Second) of Torts § 766, comment u.

Similarly, in affirming the issuance of a preliminary injunction in a case based upon tortious interference with contractual relations and trespass claims, the Third Circuit recognized that injunctive relief may be appropriate before an actual pecuniary loss is sustained. In this regard, the Third Circuit held that a preliminary injunction may issue where the claimant has demonstrated that there is a "presently existing actual threat of injury". Ride the Ducks of Philadelphia, LLC v. Duck Boat Tours, Inc., 138 Fed.Appx. 431, 434 (3d Cir. 2005) (citing Continental Group, Inc. v. Amoco Chemicals Corporation, 614 F.2d 351, 359 (3d Cir. 1980)).

Hospitality Assocs. of Lancaster, L.P. v. Lancaster Land Development, 2008 U.S. Dist. LEXIS 76772 (September 20, 3008, Gardner, J.).

Shiner v. Moriarty, cited above, quotes Pawlowski v. Smorto, 403 Pa. Super. 71, 588 A.2d 36 (Pa.Super. 1991), for the damage element of the tort involving "the loss of the benefits of the contract or prospective relation or consequential, emotional or reputational losses resulting from the defendant's conduct."

Did you plead all that last time? If not, perhaps you should consider amending...

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The plain meaning rule is to litigators what hammers are to contractors. It may be easy to use, but since you're going to use it on every job, you need to get good with it.

When interpreting a statute, rule, regulation, contract, or other legal document, courts first look to the plain meaning of the language in the document itself. If the language is unambiguous, then that plain meaning will be applied, regardless of any external factors or policy interpretations.

The bailout bill added the following to Section 13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)) [the bolded language is the most relevant here]:

(11) UNENFORCEABILITY OF CERTAIN AGREEMENTS. No provision contained in any existing or future standstill, confidentiality, or other agreement that, directly or indirectly

"(A) affects, restricts, or limits the ability of any person to offer to acquire or acquire,

"(B) prohibits any person from offering to acquire or acquiring, or

"(C) prohibits any person from using any previously disclosed information in connection with any such offer to acquire or acquisition of,

all or part of any insured depository institution, including any liabilities, assets, or interest therein, in connection with any transaction in which the Corporation exercises its authority under section 11 or 13, shall be enforceable against or impose any liability on such person, as such enforcement or liability shall be contrary to public policy.

Assume Citigroup has an "agreement"  with Wachovia, an "insured depository instutition," that contains a "provision" that "directly... limits the ability of any person to offer to acquire or acquire" Wachovia. Then Wells Fargo comes in and acquires Wachovia.

Citigroup sues for damages. What result?

There is no law whatsoever interpreting the above language. Thus, Wachovia offered a restrained 15 pages explaining how the above is so unambiguous it needs no further argument, while Citigroup filed a downright svelte 7 pages of argument as to how the statute reflectled a precisely contrary unambiguous meaning. (Both briefs are available at the WSJ Law Blog).

I believe Congress did not mean what it wrote, and that the Court will ignore the "plain meaning" rule to get at what Congress probably did mean.

Citigroup has a very strong argument that 126(c) limits enforceability and liability only of the "person" described immediately above, which would be the acquirer (Wells Fargo), and not the institution (Wachovia). If Congress, say, wanted to void the provision entirely, they could have do so by writing:

Any provision in an agreement that purports to limit the ability of a person to acquire, or to offer to acquire, all or part of any insured depository institution is hereby declared void.

In that case, the provision would have been blown up, eliminating all liability. It's not like Congress didn't know how to "void" an agreement. Here's what happens if a shifty promoter tries to skirt securities exchange regulations protecting investors, as per 15 USCS § 78cc:

(a) Waiver provisions. Any condition, stipulation, or provision binding any person to waive compliance with any provision of this title [15 USCS §§ 78a et seq.] or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.

Blammo! The "provision ... shall be void."

And here's what happens when a Member of Congress tries to make a deal with the United States or its agencies, as per 18 USCS § 431:

Whoever, being a Member of or Delegate to Congress, or a Resident Commissioner, either before or after he has qualified, directly or indirectly, himself, or by any other person in trust for him, or for his use or benefit, or on his account, undertakes, executes, holds, or enjoys, in whole or in part, any contract or agreement, made or entered into in behalf of the United States or any agency thereof, by any officer or person authorized to make contracts on its behalf, shall be fined under this title.
 
All contracts or agreements made in violation of this section shall be void; and whenever any sum of money is advanced by the United States or any agency thereof, in consideration of any such contract or agreement, it shall forthwith be repaid; and in case of failure or refusal to repay the same when demanded by the proper officer of the department or agency under whose authority such contract or agreement shall have been made or entered into, suit shall at once be brought against the person so failing or refusing and his sureties for the recovery of the money so advanced.

Wham! "All ... agreements ... shall be void."

Here, however, in 126(c), Congress didn't do that. They gave us a long, detailed description of a "provision" they thought should not "be enforceable against or impose liability on such person," a "person" they specifically described above as one who was attempting to acquire or actually acquiring an institution.

Congress knew how to "void" an unwanted provision of an agreement and chose not to do so here. That weighs heavily in Citigroup's favor.

But there's a problem: how would an agreement between Citigroup and Wachovia ever "be enforceable" or "impose [ ] liability" on Wells Fargo? 

Wells Fargo is a third-party to the agreement between Citigroup and Wachovia. The agreement creates much that can be enforced against, and which imposes liability on, Wachovia, because it is a party to the agreement. Wells Fargo, though, is not bound at all by the agreement.

That's not to say Wells Fargo is without liability. The claim here is simple: Citigroup is suing Wachovia for breach of contract and Wells Fargo for tortious interference with contractual relations. That's it; Citigroup's claim against Wells Fargo arises as a matter of tort, not as a matter of contract.

Citigroup thus has not and cannot allege that Wells Fargo somehow breached an agreement with Citigroup, since there isn't one.

So here's our problem: if you read the the statute literally, the plain meaning destroys a type of "enforceability" and "liability" that rarely, if ever, exists. Not unless the acquirer had some type of non-competition agreement with a second company not to attempt to acquire a third-party institution, which is not the case here. Frankly, such an agreement — e.g., Wells Fargo agreeing with Citigroup not to acquire Wachovia — would likely invite an antitrust inquiry, not to mention a very upset Hank Paulson asking why they're trying to deep freeze an already frozen market.

So 126(c) is like a law excusing me from enforcement or liability arising from the agreement you have with your phone company. I was never obligated to follow that agreement in the first place.

So, now what? Here is where I suspect the plain meaning rule will fail, and the court will disregard an unambiguous meaning to reach the result it believes Congress intended.

As described above, I think the "plain meaning" interpretation of the section is clear: any agreement in which a potential acquiring company has agreed not to acquire an FDIC-institution is unenforceable. That's not the situation in the Citigroup versus Wells Fargo case (since Wells Fargo was not party to any such agreement), and so the statute is wholly inapplicable. Period. The suit goes forward against both Wells Fargo and Wachovia.

But that is probably not what will happen. 126(c) was obviously intended to apply to this deal specifically, hence the "in connection with any transaction in which the Corporation exercises its authority under section 11 or 13," which describes the FDIC-approved Citigroup/Wachovia deal. As such, I predict the court will read this statute as an attempt by Congress to protect Wells Fargo from liability arising from that agreement, even if the "plain meaning" would seem only to apply if Wells Fargo itself signed on to that agreement.

Wachovia, however, has a much longer road ahead. I think it's fatal to their defense that Congress didn't just up and void the whole agreement.

Given how Congress works, maybe the above really is what they intended: Wells Fargo gets Wachovia, but in the process they have to pay Citigroup's damages. Indeed, Citigroup's "negotiated" agreement to withdraw the request for injunctive relief suggests to me that's precisely the compromise, likely entered into with Federal, shall we say, persuasion.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Love or hate his political leanings these days, the man is very prolific and influential, and his early work is so impressive as to be lauded even by his harshest critics. Here's a great introduction to his work, if you're so inclined.

He wrote, a while back, "How I Work," with four tenents that work just as well for lawyers as they do economists:

Here are the rules:

1. Listen to the Gentiles

2. Question the question

3. Dare to be silly

4. Simplify, simplify

• Email This
• Print
• Comments
• Trackbacks
• Share Link

If you've been following the multi-billion-dollar fight going on for Wachovia (Scribd copy of the Exclusivity Agreement at issue here, courtesy of Dealbook), you may have noticed the following:

In the Sunday night ruling, the Appellate Division of [New York] State Supreme Court threw out an order by Justice Charles Ramos issued late Saturday at the request of Citigroup; the order would have extended the time under which Wachovia and Citigroup had to complete their deal.

Citigroup, which announced on Sept. 29 that it had received federal government backing to acquire the banking assets of Wachovia Corp. for $2.1 billion, or the equivalent of about $1 a share, said it would appeal the decision.

The fight was also waged in federal court, where Wachovia asked U.S. District Judge John Koeltl to declare invalid part of the Citigroup deal that would have restricted Wachovia from considering competing bids.

Citigroup sued Wachovia and Wells Fargo in state court to enjoin them and order specific performance of the agreement, while Wachovia filed in federal court for a declaratory judgment affirming the enforceability of the Wells Fargo deal. The claims are analytically distinct, but factually exactly opposite: C wants to blow up WF's deal and enforce C's deal, while W & WF want to blow up C's deal and enforce W & WF's deal.

Now what?

Of course, the issue could have been partly resolved back when C and W reached their agreement by choosing a single court in which the agreement and its enforceability would be interpreted, but instead they went for the same boilerplate language you will find on almost all business contracts:

This agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The parties hereby irrevocably and unconditionally submit to the exclusive jurisdiction of any state or federal courts sitting in New York City, Borough of Manhattan, over any suit, action or proceeding arising out of or relating to this letter agreement.

Why do businesses always consent to "state or federal" jurisdiction? Presumably, the advanages of one over the other are apparent at the time of the signing, so it would make sense to pick one or the other. "Flexibility" doesn't make sense as an explanation — you just end up with the situation we have here.

One would think the problem of simultaneous federal and state suits would have been addressed by the Constitution itself, but it's wholly silent on the issue. The answer arises from the Anti-Injunction Act of 1793, which in its current form reads:

A court of the United States may not grant an injunction to stay proceedings in a state court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.

The Act has teeth: unless one of the statutory exceptions applies, a federal injunction restraining prosecution of a lawsuit in state court is absolutely prohibited. Mitchum v. Foster, 407 U.S. 225, 228-29, 32 L. Ed. 2d 705, 92 S. Ct. 2151 (1972). Moreover, "The mere existence of a parallel action in state court does not rise to the level of interference with federal jurisdiction necessary to permit injunctive relief under the 'necessary in aid of' exception." Lou v. Belzberg, 834 F.2d 730 (9th Cir., 1987).

Thus, the federal court cannot stop the state court even if it wanted to, nor can the state court stop the federal court.

So what happens? Usually, one of them voluntarily bows out.

In Pennsylvania, the challenge of a "prior pending action" falls under the general rubric of lis pendens, requiring the challenger establish the following three prongs:

A plea of former suit pending must allege that the case is the same, the parties the same, and the rights asserted and the relief prayed for the same...

Hillgartner v. Port Auth., 936 A.2d 131 (Pa. Commw. Ct., 2007). In Hillgartner, the state court pulled out in light of a parallel federal court action "because the first action in federal court includes and therefore adequately protects all Plaintiffs' state claims for compensatory and punitive damages. Thus, Plaintiffs seek the same amount of money damages measured in the same way in both federal and state courts ..."

On the flip side, Federal courts will frequently decline to exercise jurisdiction over primarily state law questions (like the interpretation of contracts), which is what everyone expects to happen here, hence Wachovia's novel "federal" argument:

Wells and Wachovia went to federal court to argue that a provision in the new $700 billion Economic Stabilization Act, signed into law on Friday, made the dispute a federal matter. Last night, U.S. District Court Judge John G. Koetl gave lawyers until tomorrow to file briefs. According to Tulane law prof Elizabeth Nowicki, who reached out to us yesterday, Wachovia is arguing that, under federal law, Section 126(c) of the bailout bill voids the exclusivity agreement between itself and Citi, meaning that that Wachovia is free to negotiate with any entity it pleases. While Judge Koetl is apparently willing to entertain that argument, Professor Nowicki tells us she thinks the argument is a non-starter.

You can read more about Section 126(c) at the link above, then you can pause to marvel how the Senate passed a bill specifically addressing this exclusivity deal fewer than 48 hours after it was reached, in spite of Art. I, Sec. 10 of the Constituion, which prohibits laws impairing the obligations of contracts. Now that's what I call lobbying power.

At the end of the day, there's more than enough leeway in the law for both courts to keep going simultaneously, engaging in the dreaded and unseemly 'race to judgment.' My bet is that the Federal court will either bow out or drag its feet as a lesson to those who would try to make a federal case out of their humdrum multibillion-dollar contracts.

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

I don't mean to intrude upon the jurisdiction of the financial blogs. If you'd like to know more about the financial aspect of the AIG loan, here's The Big Picture and the Economist's View, both of which link all over the place.

I'd like to talk about the legal structure of the "loan," given its resemblance to an entity that plaintiffs' attorneys like myself frequently encounter: the insurance guaranty assocation. As we'll see below, the loan creates obligations similar to those of a guaranty association, but with a problematic twist: the federal government now not only must decide how to conserve capital available for future insurance claimants, but also what to do with the assets and value of the insurance company itself, two functions typically given to different parties in ordinary insurance company liquidations.

More below.

[UPDATED: The powers that be have deigned to fill us in on the details. The loan is quite traditional, despite prior reporting, and the Federal Reserve does not hold an interest unless and until the loan is not repaid in 24 months. The below analysis thus still applies, but not until that default in two years.]

Here's part of the Federal Reserve's statement:

The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.

The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.

The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.

The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries.  These assets include the stock of substantially all of the regulated subsidiaries.  The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.

Pretty harsh; 850 basis points puts the "loan" at over 10% right now, and it only lasts two years. Moreover, with the taxpayers now owning 80% of the business (why not 100%?), the purpose is not to keep the business afloat but rather to have an orderly liquidation. [Update: ownership does not change unless and until a default in 24 months]

AIG isn't the first insurance company to go under; as the NCIGF points out, "Since 1976, there have been about 600 insolvencies of property and casualty insurers." When an insurer goes under on the state level, two processes go into motion: 

1. The insurer goes into bankruptcy and a governmental conservator / receiver is appointed, like in the Thabault v. PriceWaterhouseCoopers suit, where the Insurance Commission for Vermont is the receiver for the defunct Ambassador Insurance Company.
2. The insurer's obligations are picked up by a state-run non-profit guaranty association, like The Pennsylvania Property and Casualty Insurance Guaranty Association (PP&CIGA).

The two then work in tandum, with the receiver trying to get money wherever they can and the guaranty association operating to ensure at least some compensation for the claimaints against parties insured by the defunct insurer.

Both insurance receivers and insurance guaranty associations have a reputation for being aggressive. In Thabault, the Commissioner in Vermont just had a $182.9 million verdict against the insurer's negligent accountants affirmed by the Third Circuit. In Pennsylvania, just last year PP&CIGA was reprimanded by the Pennsylvania Supreme Court for its “slash and burn approach to protecting PPCIGA’s assets." Carrozza v. Greenbaum, 591 Pa. 196, 215, 218 (2007).

So why didn't that happen here? Two reasons.

First, there's no Federal guaranty assocation. Nothing, nada. There's no structure in place at all for the Federal government to assume operational responsibility for AIG's coverage. Maybe the old Resolution Trust Corporation could come back, as some big names have proposed, but they don't know how an insurance company operates, so that's probably not a good idea for AIG.

Second, as the Bankruptcy Litigation Blog has covered quite thoroughly, the 2005 BAPCPA amendments fundamentally altered bankruptcy for financial contracts:

To provide enhanced protection to the financial services industry, Congress added or expanded the Code's definitions for such industry staples as "forward contracts" (§101(25)), "repurchase agreements" (§101(47)), and "swap agreements" (§101(53B)). Various other Code provisions were amended or added to reflect Congress's desire to enable a nondebtor party–without hesitation–to terminate, liquidate or accelerate its securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements or master netting agreements with the debtor.

That renders the "automatic stay" that normally comes with bankruptcy useless with regard to a wide variety of financial contracts, which were the source of AIG's problems. If AIG declares bankruptcy, it opens itself up to a fantastically disordered liquidation. So bankruptcy is out of the question, too.

But why do I think the Federal Reserve is acting like a guaranty assocation? As the D&O Diary points out,

 Finally, I must address the interests of policyholders. On Tuesday, AIG released a statement (here) that its insurance subsidiaries "remain adequately capitalized and fully capable of meeting their obligations to policyholders." Along those lines, it is important to keep in mind that AIG’s current predicament is not the result of insurance losses, so the separately capitalized insurance companies’ ability to meet its obligations essentially remains unchanged.
 
Moreover, the collateral securing the Fed’s lending facility does not include the insurance companies’ assets, so even if the parent company heads south in a big way despite the $85 billion loan, the insurance companies’ existing surplus should remain to address policyholder claims, subject of course to the effects of claims payment.

In the days ahead it will be very important to understand how the current operating circumstances will affect the insurance companies and their operations, and in particular whether there are any other implications for policyholder surplus and the insurance companies’ claims paying ability.

In theory, the insurance companies are protected. Their assets are apparently not even part of the collateral for the Federal Reserve loan. But there's a problem, as raised earlier in Kevin's post:

The government wants to get repaid, so it wants the "orderly sale" of the businesses to produce sales values sufficient to effect repayment. That implies that the operating companies should continue operating. But among the insurance companies, for example, there are many practical questions that only active and engaged management can decide – risk appetite, level of pricing aggressiveness, extent of reinsurance, limit exposures, prohibited classes, and so on. All of these decisions must now take place under potentially unusual conditions, in effect under the supervision of a government appointed caretaker/liquidator?

Therein lies the rub: general insurance is its only profitable sector, so it's the only source of new funds. Which raises a couple questions:

1. Will AIG file for bankruptcy if the current credit facility is not enough to keep operational? Doing so will, as discussed above, likely result in a total collapse as counterparties abandon their obligations.
2. Will the Federal Reserve attempt to use the insurance arm as a profit center to fund payments to the Federal Reserve or other creditors? Doing so imperils the reserve available for future claimants on the policies.
3. Will the Federal Reserve sell off the insurance arm? Doing so imperils the Federal Reserve's loan as well as the demands of other creditors.

That leaves the Federal Reserve balancing its own interests against those of claimants, the very sort of problem avoided by the normal receiver / guaranty association split. Who do you think will win out?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Well, this sounds fair:

Last week, the Senate Judiciary Committee gave the green light to S. 3325, "The Enforcement of Intellectual Property Act of 2008." Among other things, this intellectual property enforcement bill lets the DOJ enforce civil copyright claims and lets the government do the MPAA and RIAA’s intellectual property rights enforcement work for them—at tax payers’ expense.

We've setup Cause Caller to help you talk to Senators that we believe would be receptive to the message, but you should call your Senators, too.

The bill is already out of committee and could get sign-off from Senators for streamlined passage as soon as today, so we need you to call in now!

The bill is opposed by (at least) the following:

American Association of Law Libraries
American Library Association
Consumer Federation of America
Consumers Union
Digital Future Coalition
Electronic Frontier Foundation
Essential Action
IP Justice
Knowledge Ecology International
Medical Library Association
Public Knowledge
Special Libraries Association

Click the first link to contact your Senator and ask if they'll fund and pursue your personal civil litigation, too, in lieu of catching and convicting child predators, terrorists, gangsters, and pension fund embezzlers. Don't forget to ask the same for me, too.

Or just ask they call the whole thing off.

(via Boing Boing)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Enrico Schaefer (a.k.a. The Greatest American Lawyer) has an article in Law Technology News about digital dictation, with a number of resources and products to check out.

A good time to make one thing clear:

• Digital dictation is one of the easiest and most effective ways to make a litigation or trial practice more efficient.

Seriously. "But I'm a solo! I don't have a full-time secretary." Fine - get yourself a virtual assistant, a dictation transcription service, and/or a voice recognition program.

Big firm? Even less of an excuse.

You will use it immediately to review files, to shoot off letters, to prepare pleadings -- all at your pace, with the ability to change dictations instantly and insert speech into the middle of a recording.

Really, the fact that he's publishing that article at all shows that some of you don't get it. Get with the program.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

This isn't a political post, at least not intentionally.

The Wall Street Journal on Saturday carried a story about the legal troubles of the Wasilla sports complex which was built under Sarah Palin's watch (the story isn't new, see these links). It gives us a good window into the two main types of "legal advice" a lawyer can give to an organization or business -- i.e., advice for avoiding certain legal risks and advice that weighs different possible legal outcomes -- and how organizations and businesses should respond to that advice. The story's been picked up as an example of poor executive judgment by Sarah Palin; it may be, but it's not that simple.

Short story: in the late 1990s Wasilla reached an agreement to buy a 145-acre lot for $126,000. The seller then went with another buyer, Wasilla sued, won initially, began construction, was reversed, and had to eminent domain the most important 80 acres. At the end of the day, Wasilla paid $250,000 in legal fees and was ordered by an arbitrator to pay $836,378, plus $336,000 in interest, for the land.

Since all land is unique, failed-and-repurchased real estate deals rarely fail for a fraction of the original price. They fail for a multiple of the original price. So it's not surprising that, once the deal failed the first time, Wasilla ended up getting a little over half of what they "bought" for ten times the price they negotiated. Lawyers and real estate brokers know that happens.

In essence, two things went wrong for Wasilla:

• Wasilla never finalized the initial deal;
• Wasilla relied on a federal district judge's order in 2001 in their favor, which was later reversed.

The former is a classic example of an avoidable legal risk. When lawyers study for the bar exam, few things are pounded in their heads so forcefully as the need to follow precisely the requirements for the transfer of real estate. For example, the failure to 'record' a real estate purchase typically voids the putative buyer's title. It's that serious.

So it's a bit surprising to see this paragraph:

City officials negotiated a price of $126,000. Months passed without the city's securing a signed purchase agreement, according to the city's attorney, Tom Klinkner of Birch, Horton, Bittner & Cherot.

An oral agreement to purchase real estate is unenforceable, barred by the statute of frauds every state, including Alaska. Little wonder the seller (the Nature Conservancy) thought it could sell it to another buyer, and the buyer thought they could buy it.

The real question is: who let a fully negotiated real estate deal sit around? Did their lawyer fail to tell them they had to get moving if they wanted to make it enforceable? Did the city sit on its hands, perhaps fretting about tendering the cash? Someone dropped the ball; it's that simple.

After Wasilla sued to enforce their unenforceable deal, I haven't the foggiest clue how they convinced the Federal District Court Judge to rule anything in their favor, but apparently they did.

Which brings us to the latter, which was likely either a failure of the lawyer to weigh the legal risks appropriately or a failure of the executive to appreciate the consequences of those legal risks once presented to her. After the order in Wasilla's favor,

Ms. Palin marched ahead, making the public case for a sales-tax increase and $14.7 million bond issue to pay for the sports center, which was to feature a running track, basketball courts and a hockey rink. At the time, the city's annual budget was about $20 million. In a March 2002 referendum, residents approved the mayor's plan by a 20-vote margin, 306 to 286. The city cleared roads, installed utilities and made preparations to build.

Not necessarily the wrong decision. They had an order in hand, plus unlimited eminent domain power if something went wrong. If they wanted the land, they were going to be able to get it, the question was just how much they would pay (including legal fees) and how long until the ordeal was over.

But recall the circumstance -- a failed real estate deal -- in which the eventual price may need to be many multiples of the original deal. Those numbers aren't insignificant in this context, and they had the capability to explode into a significant fraction of the city's budget. Order or not, both the lawyer and the city should have been concerned.

"[T]he city believed it would prevail ..." I haven't seen the briefs or the order, so I have to speculate. Wasilla had prevailed in the first instance, which itself makes it reasonable to think it could hold up on appeal.

But a lawyer is held to a higher standard than what could be reasonable; they're hired not to make plausible judgments, but to make sound ones. Did the lawyer not advise the city of the high odds of reversal of their enforcement of an oral real estate agreement? Did the city ignore that advice and then not bother with less risky/costly solutions, like settling with the other buyer before committing $14 million to that lot?

Maybe the City was advised of, and considered, the risk of reversal followed by an expensive eminent domain process, and charged through anyway, firing up the bond issue, construction, et cetera. That's not necessarily a bad decision, though it may be rash given the numbers involved.

At the end of the day, I just can't help but think that at least one, and possibly two or more major mistakes in judgment were made in this whole endeavor.

Someone let the initial purchase agreement lapse, as simple and plain an error as ever was. It wasn't even a bad judgment call; it was a failure to minimize an obvious legal risk.

Then someone didn't properly weigh the risks of the litigation, a more subtle, but here more costly, error.

There's a distinction between "weighing the risk of litigation" and "predicting the outcome." No one can do the latter, nor should they try. The former, though, must be done, and it involves two separate exercises of judgment: the legal judgment of the lawyer in determining the possible outcomes and their likelihood, and the business / administrative judgment of the city in assessing the effect of those outcomes on the city and the best course in context.

One of those two was missing here. Which one?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

An interesting aside from Sovereign Bank v. BJ's Wholesale Club, Inc., 533 F.3d 162 (3d Cir. 2008), a complex business dispute discussed in my prior post.

Here's the deposition testimony given by a Visa corporate representative, on which the Third Circuit relied in reversing summary judgment in favor of the Acquirer:

Q: [by Acquirer's counsel] Is it fair to say that the operating regulations are not intended to benefit a single group of participants, but the Visa payment system as a whole?

Objection. Leading.

A: [by Visa rep] It's fair to say that the core purpose of the operating regulations is to set up the conditions for participation in the system, to set up rules and standards that apply to that ultimately for the benefit of the Visa payment system, the members that participate in it and other stakeholders such as cardholders, merchants and others who may participate in the system as well. (emphasis added).

Q: They may have some incidental benefit; is that correct?

Objection

Leading, and calls for a legal conclusion.

A: The bylaws and operating regulations, by their terms, apply only to members. So to the extent you mean they might have benefits beyond the rules that apply to other stakeholders, that's correct. They're not directly parties to these rules. (emphasis added)

Stop for one second and consider: these questions were asked by the Acquirer's counsel. They were blatantly leading ("is it fair to say") and tried to get legal conclusions ("incidental benefit"), resulting in the Visa corporate representative rejecting their argument, providing fodder for the Third Circuit to overturn their summary judgment.

I don't mean to question the tactical decisions of the Acquirer's lawyers. Indeed, given the absence of other deposition excerpts in support of the Issuer's argument, there seems to have been a reasonable basis for the Acquirer's lawyer to think the Visa corporate representative was going to give them exactly what they wanted to hear.

But the representative did not, and instead gave the appellate court grounds to overturn summary judgment when, as mentioned above, it appears there was little other testimony favorable to the Issuer.

Just something to keep in mind: as tempting as the coup de grace may be, it rarely works as planned.

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

Courtesy of the complicated mess that is Sovereign Bank v. BJ's Wholesale Club, Inc., 533 F.3d 162 (3d Cir. 2008), in which credit card "Issuers" sued credit card "Acquirers" and "Merchants" (Acquirers are the companies that process transactions for the Merchants) after a bunch of credit card numbers were stolen from the Merchant.

The big issue is: are Issuers intended beneficiaries of the Merchant and Acquirer's agreement with the Visa network, which includes a number of anti-fraud regulations that the Merchant and Acquirer allegedly didn't follow?

Historically, under Pennsylvania law, "in order for a third party beneficiary to have standing to recover on a contract, both contracting parties must have expressed an intention that the third-party be a beneficiary, and that intention must have affirmatively appeared in the contract itself." Scarpitti v. Weborg, 530 Pa. 366, 609 A.2d 147, 149 (Pa. 1992) (citation omitted). Sovereign appropriately concedes that it is not an express third-party beneficiary of the Visa-Fifth Third Member Agreement. However, in Scarpitti, the Pennsylvania Supreme Court adopted § 302 of the Restatement (Second) of Contracts. Id. That provision allows an "intended beneficiary" to recover for breach of contract even though the actual parties to the contract did not express an intent to benefit the third party. Section 302 provides as follows:

Intended and Incidental Beneficiaries

 (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intentions of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

Got all that? Summary judgment reversed, based upon a memorandum and deposition testimony indicating that the regulations were for the benefit of all the members, as discussed in the next post.

Update: for some reason, movable type ate most of my post, which has been corrected.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A nice list of 11 free mind mapping applications was just posted at Lifehack.org.

If you've never heard of the concept, you can check out this thorough introduction by Dennis Kennedy.

Personally, I find that if I'm dealing with a lot of issues at once -- as is frequently the case in business litigation, multi-defendant personal injury cases, or cases involving a lot of documents -- there are few better ways to get everything in your brain down onto paper in a coherent form.

There are only really two secrets: 

1. Mind mapping requires too much of an investment of time to use all the time, so save it for when you start having trouble juggling issues in your head; and,
2. Don't worry about making it perfect. A perfect mindmap is a bad thing, as it usually means you've missed something.

The end result should be coherent enough to help you organize your thoughts but flexible enough that it doesn't hinder those same thoughts by forcing a rigid structure on them.

The first time you make it work you'll wonder how you ever lived without it.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

We're aiming for new heights of nerdom here at Litigation & Trial, combining comic books, movies, old law school contract cases, equitable principles, permanent injunctions, and recent circuit splits in one post. The Watchmen lawsuit -- which is less copyright infringement and more commercial litigation, since the dispute is largely over contract terms -- gives us license (har har) to do so.

Graphic novels (née "comic books") are serious money these days, at least when adapted for the big screen. In addition to the normal superhero adaptations, like Iron Man and The Incredible Hulk (which have generally done quite well), particular attention has been paid to noir comics like Sin City and 300. (The Nolans' Batman adaptations are a hybrid, drawing from noir variations on Batman, like The Dark Knight Returns.)

Watchmen, published in 1986-87, is perhaps the most heralded of the noir comics, a complex and character-driven drama set in a alternative-history 1980s United States in which superheroes (the bulk of which have no obvious superpower) have been suppressed as unaccountable vigilantes, while Nixon is on his fifth term as president.

Such a complicated tale obviously presents numerous visual, thematic and temporal problems for moviemakers, in addition to normal stress of taking a work revered by a subculture and making it widely appealing without offending the subculture or alienating the masses. Multiple attempts to make the movie since the story was published have fizzled out; even Terry Gilliam, who has no trouble bringing madness to the big screen, deemed it unfilmable.

But Zack Snyder, who directed the enormously successful 300 (which made $450 million on a $60 million budget), has apparently done it and done it well.

Since he's appearing on this blog, you can guess what happened next: the production company, Warner Brothers, was sued.

The movie buzz is that the case has substantial merit and could turn the movie into a loss for WB, and the original documents are available online for your perusal. In essence, Fox bought the complete rights to Watchmen, tried to begin production, gave up, quitclaimed the rights to the producer (with the terms of that quitclaim disputed), then entered into multiple disputed subsequent agreements. Here's the Court's outline (as formatted by Deadline Hollywood):

1986-90: Fox acquires motion picture rights in The Watchmen.

1990: Fox enters into a domestic distribution agreement with Largo Entertainment, a joint venture of JVC Entertainment Inc., Golar (Larry Gordon), and BOH, Inc. The “Largo Agreement” established Fox’s domestic distribution rights, through a license from Largo, in “subject pictures” as defined in the agreement.

June 1991: Fox enters into a “Quitclaim Agreement” with Largo International, through which Fox “quitclaims to Purchaser all of Fox’s right, title and interest in and to the Motion Picture project presently entitled Watchmen, which included specifically described literary materials. Notably, the agreement provides that, “if Purchaser elects to proceed to production, the Picture shall be produced by Purchaser and shall be distributed by Fox as a Subject Picture pursuant to the terms of the Largo Agreement ...” In consideration for the rights to Watchmen, Fox was to be reimbursed for its development costs ($435,600) plus interest plus a profit participation in the worldwide net proceeds of any Watchmen picture.

Nov. 1991: The Largo Agreement was amended; Watchmen was listed as a project quitclaimed to Largo.

Nov. 1993: Larry Gordon, through Golar, withdraws from the Largo Entertainment joint venture; Largo conveys any rights it has in Watchmen to Gordon/Golar. Based on the 1991 quitclaim, the Court may infer that Gordon now stood in the shoes of Largo with respect to Watchmen and held whatever rights it acquired through the 1991 Quitclaim, which left Fox with the distribution rights it retained through that agreement.

1994: Fox negotiated a “Settlement and Release” agreement with Gordon which contemplated that the Watchmen project would be put in “perpetual turnaround” to Lawrence Gordon Productions, Inc. The “turnaround notice” gave Lawrence Gordon Productions “the perpetual right . . . to acquire all of the right, title and interest of Fox [Watchmen] pursuant to the terms and conditions herein provided.” The turnaround notice then described the formula for determining the buy-out price in the event that Gordon elected to acquire Fox’s interest. Thus, the document suggests that Gordon acquired an option to acquire Fox’s interest in Watchmen for a price. In fact, the notice obligated Gordon to pay the buy-out price on the commencement of any production of a Watchmen film. The notice also provided that the agreement was personal to Gordon and that, “prior to payment of the Buy-Out Price,” he could not assign rights or authorize any person to take any action with respect to the project.

(emphasis mine) WB now argues the full rights were quitclaimed multiple times; Fox claims they granted an option the producer failed to exercise, so the rights are still their's. A court last week denied WB's motion to dismiss. Variety summarizes:

At the heart of Fox’s suit, filed in February, is the contention that it never ceded rights to the property. And according to the federal Judge Gary Allen Feess, Fox retained distribution rights to the graphic novel penned by