Rolling Stone’s Matt Taibbi described Goldman Sachs as “a great vampire squid wrapped around the face of humanity,” a phrase that, while defamatory of a uniquely adapted cephalopod minding its own business 3,000 feet under the sea, rang true. Yesterday, the intermediate appellate court for New York state agreed: Goldman Sachs is so obviously dishonest that you cannot sue them for fraud unless you get them to specifically agree that they aren’t lying to you.

First, the facts. In essence, Goldman Sachs brought in a hedge fund (Paulson & Co.) to put together a group of horrible investments (called “Abacus”) that they expected to fail — and even bet against — and then set about finding rubes to invest in it, thereby helping Goldman and Paulson make a tidy profit off the investor’s losses. One other banker who passed on the deal described it as “like a bettor asking a football owner to bench a star quarterback to improve the odds of his wager against the team.” (He’s quoted in the dissent.)

ACA Financial Guaranty Corporation was one of the rubes Goldman Sachs found. As Reuters reported, ACA’s lawsuit against Goldman Sachs “alleged that Goldman misrepresented the role of the hedge fund Paulson & Co, which supposedly selected underlying mortgage-backed securities that doomed the [collateralized debt obligation] to fail, thereby assuring Paulson of big profits on its undisclosed Abacus short.” The scam was so blatant the Securities and Exchange Commission brought its own case against Goldman Sachs, which settled for $550 million.

Sounds simple enough; as James Surowiecki wrote about the scandal three years ago, echoing the thoughts of many financial journalists, there was ample reason to believe that ACA was both a “dupe” hoodwinked by Goldman and a “dope” that failed to perform adequate due diligence on a complicated investment. Being a “dope” is a problem, but one would assume that a duped dope would be allowed to present evidence to a jury arguing that the fraud was a bigger problem than the lack of due diligence.

Except that the New York courts won’t let ACA get to a jury.
Continue Reading Never Trust A Vampire Squid: Merger Clauses & Fraudulent Inducement

If you’re a reader of this blog, you’re undoubtedly familiar with Bell Atlantic v. Twombly and Ashcroft v. Iqbal, a pair of Supreme Court cases which altered the pleading standards applicable to civil cases filed in federal court.

Defense lawyers have jumped all over those two opinions in an attempt to dismiss lawsuits — particularly complex commercial class actions, like antitrust cases — before any discovery can be taken. Every lawsuit, they claim, no matter how detailed and compelling, is "implausible" under Twombly and Iqbal. I taught CLEs to help other trial lawyers defeat those arguments.

Back when the Iqbal opinion first came out, I wasn’t impressed. Sure, the Supreme Court added the word "plausible" to the Rule 8 standard, but frankly I didn’t think Twombly or Iqbal would make Rule 8 and Rule 12(b)(6) any more dispositive than they already were. Before either of those cases were decided, if a judge read a plaintiff’s complaint and thought that the claim was "implausible," they would dismiss it under Fed.R.Civ.P. 12(b)(6) for failing to state a claim upon which relief could be granted. Twombly and Iqbal simply codified a practice that was already widespread in the federal judiciary.

That’s not to say I think the opinions do nothing — by way of their vague, ambiguous and amorphous language, they confuse a lot of judges into arbitrarily deeming certain allegations to be "conclusions" instead of "facts" (and even Judge Posner can’t figure out the "plausibility v. probability" distinction) — but the underlying legal principles are the same.

I said as much at the time. Time has proven me correct.

Almost exactly a year ago I posted Second Circuit Revives Digital Music Price-Fixing Case, Takes A Bite Out Of Twombly, noting a Second Circuit opinion which held:

Although the Twombly court acknowledged that for purposes of summary judgment a plaintiff must present evidence that tends to exclude the possibility of independent action, 550 U.S. at 554, and that the district court below had held that plaintiffs must allege additional facts that tended to exclude independent self-interested conduct, id. at 552, it specifically held that, to survive a motion to dismiss, plaintiffs need only “enough factual matter (taken as true) to suggest that an agreement was made,” id. at 556; see also 2 Areeda & Hovenkamp § 307d1 (3d ed. 2007) (“[T]he Supreme Court did not hold that the same standard applies to a complaint and a discovery record . . . . The ‘plausibly suggesting’ threshold for a conspiracy complaint remains considerably less than the ‘tends to rule out the possibility’ standard for summary judgment.”).

Defendants next argue that Twombly requires that a plaintiff identify the specific time, place, or person related to each conspiracy allegation. This is also incorrect. The Twombly court noted, in dicta, that had the claim of agreement in that case not rested on the parallel conduct described in the complaint, “we doubt that the . . . references to an agreement among the [Baby Bells] would have given the notice required by Rule 8 . . [because] the pleadings mentioned no specific time, place, or person involved in the alleged conspiracies.” 550 at 565 n.10. In this case, as in Twombly, the claim of agreement rests on the parallel conduct described in the complaint. Therefore, plaintiffs were not required to mention a specific time, place or person involved in each conspiracy allegation. 

The Second Circuit’s opinion was significant. The case was right up Twombly‘s alley — an allegation of an illegal agreement in violation of antitrust laws, the details of which were still known only to the defendants — and so the Second Circuit’s reinstatement of the case dealt a powerful blow to the defense lawyers who had been arguing that Twombly and Iqbal had slammed the courthouse shut on plaintiffs who couldn’t prove their whole case before even filing it.

The record companies in that case weren’t inclined to throw in the towel, so they filed a petition for certiorari to the Supreme Court arguing, as you would imagine, that the Second Circuit failed to follow Twombly and Iqbal.

A funny thing happened yesterday. Tucked in among pages and pages of summary orders at the Supreme Court was this:

The petition for a writ of certiorari is denied. The Chief Justice and Justice Sotomayor took no part in the consideration or decision of this petition.

The Second Circuit’s opinion thus stands firm. Even after Twombly and Iqbal, all a plaintiff needs to allege, even in a complex antitrust case, is “enough factual matter (taken as true) to suggest" the elements of the claim.

That’s the same as the Third Circuit recently held in In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010) and later applied to all cases, including complex cases, in W. Penn Allegheny Health Sys. v. UPMC, No. 09-4468, (3d Cir. November 29, 2010)(precedential).

In short, the Circuit Courts have taken a hard look at Twombly and Iqbal and have rejected the numerous attempts by big corporations to slam the courthouse doors shut on meritorious cases, and the Supreme Court hasn’t stopped those Courts from setting the record straight.

In celebration, below the fold are some plaintiff-friendly precedential opinions over the last year in various Courts of Appeals (in addition to the Second Circuit and Third Circuit opinions above). Continue Reading Another Twombly/Iqbal Victory for Plaintiffs: SCOTUS Denies Certiorari for Digital Music Price-Fixing Case

If the title doesn’t ring a bell, read here. The whole Emmy-award-winning episode is here.

It always amazes me how much of the global economy is devoted to technological cat-and-mouse games; for every gadget, industrial process, or computer program out there, there are a dozen companies trying to reverse-engineer or manipulate it.


Lawyers have a lot of technical training and experience. They spend three years in a hybrid humanities / vocational graduation school, devote a few months to cramming a summary of one or two state’s laws into their brains, regurgitate and forget it all over two or three days, then spend a couple years learning, through

I already made one post out of The Social Network (i.e., Why Mark Zuckerberg Won’t Sue For Defamation Over The Facebook Movie), which is one more than I expected, but apparently there’s another legal issue in there.

Gawker and Business Insider published a scoop yesterday on the "dirty tricks" that Mark Zuckerberg used to

Over at the Delaware Corporate and Commercial Litigation Blog, Francis Pileggi highlights one of the many quirks of practice in Delaware:

Professor Bainbridge discusses an article here from The Wall Street Journal that quotes a Delaware Superior Court judge in connection with a dress code for those who appear in his court. Most Delaware

As widely reported by every tech site on the internet, last week Oracle (which recently acquired Sun Microsystems) sued Google for infringing upon a variety of software patents Sun obtained while developing the Java software platform.

For the facts, I can’t improve upon the fine commentary at Groklaw, CNet, and tech-specific sites like

Kevin LaCroix at The D&O Diary reports,

On March 24, 2010, Cornerstone Research released its annual study of securities class action lawsuit settlements. The most recent study, which is entitled "Securities Class Action Settlements: 2009 Review and Analysis" and is written by Ellen M. Ryan and Laura E. Simmons, can be found here. Cornerstone’s