Blawgletter®

D.C. Circuit Opens Antitrust Division Amnesty Archive

A lovely sea-going parcel tanker.

Parcel tanker shipping giant Stolt-Nielsen pitched a fit when the Antitrust Division in the U.S. Department of Justice revoked -- or tried to revoke -- an amnesty agreement between them.  Under the Division's corporate leniency program, the first-in bona fide seeker of amnesy gets, well, leniency; and Stolt-Nielsen still wanted it. 

Revocation loosed litigation.  Then Stolt-Nielsen asked, under the Freedom of Information Act, for a copy of all of the 100 or so amnesty agreements that the Antitrust Division had entered into since the program started in 1993.  When the Division balked, claiming exemptions, more litigation ensued.  The district court bought all of the government's arguments and told Stolt-Nielsen to suck eggs.

The D.C. Circuit reversed, finding only two exemptions arguably applicable.  Both related to revealing confidential and identifying information from and regarding amnesty recipients.  The court said the Antitrust Division needn't turn over documents that would breach confidence with program participants but rejected the government's argument (and the district court's ruling) that redacting the agreements wouldn't solve the problem.  The court remanded to the district court for determination of whether redactions would make non-secret portions "reasonably segregable" from the secret stuff.  Stolt-Nielsen Transportation Group, Ltd. v. United States, No. 07-5191 (D.C. Cir. July 25, 2008).

Blawgletter has a different question.  What relevance do amnesty agreements with other companies have to the question of whether Stolt-Nielsen violated its amnesty agreement?  Will Stolt-Nielsen try to show that the Division let violations of other agreements with different companies slide but for no good reason got real huffy with a Hollandic parcel tanker shipper?  Selective persecution?

By the way, Stolt-Nielsen won the fight over revocation of the amnesty agreement.  So far.

Do they still wear wooden shoes?

Golden State Supremes to Decide If Government May Pay Contingent Fee to Lawyers

Kimberly Kralowec at The UCL Practitioner has the story and links here.

Our feed adores the RSS icon.

MDL Panel to Hear Transfer Motions July 31

The Judicial Panel on Multidistrict Litigation will convene in the city by the bay on July 31.  Their task?  To do the important business of "centralizing" complex cases before individual federal judges so they can handle pretrial proceedings.

The Panel's Notice of Hearing Session reads like a baedeker for the latest corporate disasters.  The list for the San Francisco gathering includes, among other notables:

• Aftermarket Filters Antitrust,
• Municipal Mortgage & Equity, LLC, Securities and Derivative,
• Bear Stearns Securities, Derivative, and ERISA,
• Bisphenol-A (BPA) Polycarbonate Plastic Products Liability,
• "Cabotage", and
• Countrywide Mortgage Lending Practices.

Blawgletter counts at least three that relate to the credit mess.  Sign of the times -- and more to come, we wager.

Our feed bets on nice weather.

Supremes May Explain Twombly

Will Twombly rescue John Ashcroft from paying damages?

The U.S. Supreme Court yesterday granted the government's petition for writ of certiorari in Ashcroft v. Iqbal, No. 07-1015 (U.S. June 16, 2008), to consider (Blawgletter thinks) both of the questions that the petition posed:

QUESTIONS PRESENTED

1. Whether a conclusory allegation that a cabinet- level officer or other high-ranking official knew of, condoned, or agreed to subject a plaintiff to allegedly unconstitutional acts purportedly committed by subordinate officials is sufficient to state individual-capacity claims against those officials under Bivens.

2. Whether a cabinet-level officer or other high-ranking official may be held personally liable for the allegedly unconstitutional acts of subordinate officials on the ground that, as high-level supervisors, they had constructive notice of the discrimination allegedly carried out by such subordinate officials.

News reports on the grant played up the second question -- the one having to do with whether former Attorney General John Ashcroft and other high officials may constitutionally suffer civil judgment for subordinates' heinous conduct. 

That issue interests us, too, but something else caught our eye back when the Second Circuit upheld the claims in June 2007.  As we said then:

Second Circuit Ponders Twombly Aftermath in 9/11 Aftermath Case

Yesterday, the Second Circuit became the first U.S. court of appeals to expound on how the decision in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), has changed pleading requirements.  The court summarized:

After careful consideration of the Court's opinion [in Twombly] and the conflicting signals from it that we have identified, we believe the Court is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible "plausibility standard," which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible.

Iqbal v. Hasty, No. 05-5768, slip op. at 33 (2d Cir. June 14, 2007) (emphasis in original).  Circuit Judge Jon O. Newman wrote the court's opinion, which Blagletter highly recommends for its style and clarity.  Circuit Judge Cabranes wrote a concurring opinion.

The decision in Iqbal v. Hasty concerned civil claims against federal officials high and low for harsh confinement conditions that the government imposed on persons "of high interest" after 9/11.  The plaintiff, a Muslim Pakistani, alleged constitutional and statutory violations arising from savage beatings, frequent cavity searches (not in his teeth), solitary confinement, and other brutal treatment during his detention in a Brooklyn federal prison.  The Second Circuit largely sustained his claims despite the officials' immunity defenses.

A glance at the government's cert. petition confirms the importance of Twombly to the case.  It says that "the result reached by the court of appeals is inconsistent with a proper understanding of this Court's decision[]" in Twombly.

So perhaps in the 2008 Term we will get some elaboration on the True Meaning of Twombly.  Not to mention more clarity on accountability -- or not -- for harsh treatment of detainees in the post-9/11 world.

Feel our feed's raw power.

Yesterday, the Second Circuit became the first U.S. court of appeals to expound on how the decision in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), has changed pleading requirements.  The court summarized:

After careful consideration of the Court's opinion [in Twombly] and the conflicting signals from it that we have identified, we believe the Court is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible "plausibility standard," which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible.

Iqbal v. Hasty, No. 05-5768, slip op. at 33 (2d Cir. June 14, 2007) (emphasis in original).  Circuit Judge Jon O. Newman wrote the court's opinion, which Blagletter highly recommends for its style and clarity.  Circuit Judge Cabranes wrote a concurring opinion.

The decision in Iqbal v. Hasty concerned civil claims against federal officials high and low for harsh confinement conditions that the government imposed on persons "of high interest" after 9/11.  The plaintiff, a Muslim Pakistani, alleged constitutional and statutory violations arising from savage beatings, frequent cavity searches (not in his teeth), solitary confinement, and other brutal treatment during his detention in a Brooklyn federal prison.  The Second Circuit largely sustained his claims despite the officials' immunity defenses.

No Class for Auction Rate Securities Claims?

Thom Weidlich at Bloomberg reports that "[a]t least 24 proposed class actions have been filed since mid-March against brokerages over claims investors were told the [auction rate] securities were almost as liquid as cash."  The cases stem from the collapse of auctions that supplied liquidity for ARSs in February.  Investors could no longer sell the ARSs and so couldn't get their money out.

Mr. Weidlich explains that the class actions face two serious obstacles.  The first concerns the merits.  Many ARSs paid interest at rates a tad higher than other "liquid" alternatives, such as a money market account.  But the failure of the auctions sent them into default, which in turn triggered a contractual obligation by the issuers to pay a higher rate.  An investor earning interest at the default rate may run into trouble showing that she would've gotten a better return on her money but-for her inability to get at the cash she invested in an ARS.

This damages problem likely doesn't apply to people who bought auction rate preferred securities, which don't reset to a higher return after default.  But the difference between the dividends on the ARPSs and earnings on alternative investments may not amount to much.

The second roadblock relates to the requirements for treating claims on an aggregate basis in a class action.  A court generally won't handle a case for damages on a class basis unless the lawyers can show, on a class-wide basis, that all class members suffered harm.  Note the "class-wide basis" thing.  If the nature of the class claims requires each class member to prove the fact of injury individually, class certification becomes an iffy proposition.

How does one establish class-wide harm?  In price-fixing cases, plaintiffs typically do it by showing that the price fixers elevated the price by a minimum percentage -- 10 percent, say.  Some class members may have overpaid more than the 10 percent, but everybody overpaid by at least one-tenth.

Securities cases do much the same thing.  Experts opine that the fraud inflated the market price of the relevant stock or bond by at least such and such percentage at the time of purchase; damages represent the difference between the purchase price and the "true" value of the security.

But the collapse of auctions for ARSs didn't affect their underlying value.  The issuer's ability to pay didn't change as a result of the withdrawal of liquidity from the auction market.  So how can the investors demonstrate losses?

They conceivably could cite the difference between the buying price and the lower prices on secondary markets.  But where will they get that information for each ARS?  Unlike stocks and bonds, ARSs don't trade publicly and so purchase and sale prices don't show up in the business section of newspapers.

Conceivably an expert will find a way to calculate the minimum value of the liquidity feature of ARSs.  Blawgletter shares Bloomberg's skepticism about whether such an opinion will survive defendants' savage attacks on it, but we will wait and see.

That leaves damages resulting from an investor's inability to access his funds to use for a specific purpose.  He can't make his payroll, for instance.  Or he has to break a contract to buy a company, a piece of land, or other investment.  But such losses of profits don't happen to everyone in a class and would require proof unique to each claimant.  And brokerages that sold ARSs to such people have in some cases loaned them funds to mitigate their harm.  Those sorts of individual circumstances often mean no class action.

ARS investors still may pursue individual claims.  The best candidates are those who couldn't get their money out in time to close a pending acquisition and lost a tidy sum as a result.

There will be blood.

A Solution for Auction Rate Securities Debacle?

If you bought auction rate securities, you probably thought you could get a higher interest rate than with other highly liquid alternatives.  You likely also believed you could get your money back, with interest, within a week.  And Blawgletter bets you've gotten so mad that you almost can't see straight when you learned recently that, no, you can't tap into your cash just now -- and might not get it back for weeks or months, if at all.

A Bloomberg report today highlights the problem.  It tells of how college students parked liquid funds in ARSs only to find that they'd suddenly turned illiquid -- and the students now face the prospect of having to sit out a semester or more.

ARSs depend for their liquidity on periodic auctions in which potential investors bid on the shares available for purchase.  If the auction succeeds, the sellers get their money back.  If it fails -- as many of them started to do on February 7, 2008 -- the existing holders of the ARSs must hang onto them or sell them in a secondary market at a below-par price.

The flood of auction failures since February 7 has frozen the funds of a great many investors, all of whom presumably chose ARSs precisely because they promised a high degree of liquidity.  Some companies have already taken write-offs on their ARS holdings.  MetroPCS, for example, reported in February that it took an "impairment charge of $83 million related to the Company's investment in auction rate securities."

Those with the ability to hold the ARSs until maturity or until auctions start working again may choose that route.  But the indefinite-hold option won't compensate people who have incurred losses because they missed a deadline to pay creditors, fund purchases of goods and services for their businesses, or acquire other investments or because they sold at a loss in a secondary transaction.

What can they do?  Blawgletter sees state securities laws as a possibility.  Under state "blue sky" statutes, investors may recover "rescissory" damages or, if they sold the ARSs, actual damages.  The rescissory remedy allows investors to get the money they invested back plus interest less any "income" they received on the security.  (Note that people who want to receive rescissory damages may need to tender the ARSs back to the issuer promptly.)  Actual damages typically reflect the difference between the price the investor paid plus interest less what she received on selling the security. 

An analogous federal statute, section 12(2) of the Securities Act of 1933, applies only to the first public offering of a security and thus may not provide a remedy for transactions involving ARSs.

We'll continue looking at the ARS debacle.  Please chime in with your thoughts in the meanwhile.

Our feed does not give legal advice.  Consult an attorney!

Big Borrowers Sue Big Banks Over Clear Channel Deal

Entrance to Clear Channel Communications headquarters.

Two prolific borrowers -- the private equity firms Bain Capital and Thomas E. Lee Partners -- have sued six of the biggest banks -- Citigroup, Credit Suisse, Deutsche Bank, Morgan Stanley, Royal Bank of Scotland, and Wachovia -- for refusing to carry through on financing a buy out of radio-and-billboard behemoth Clear Channel Communications for $19.5 billion.  Bain and Lee allege that the banks committed to lend.  Stories here and here.

Apparently the dispute required at least two lawsuits -- one in Clear Channel's home town of San Antonio, Texas, and the other in New York City.  Both in state court.

Stay tuned.

Same bat time.  Same bat channel.

Supremes to Hear F-word

The U.S. Supreme Court granted the petition of the Federal Communications Commission for review of a Second Circuit decision regarding the FCC's late treatment of "fleeting expletives" on television.  Federal Comm. Comm'n v. Fox Television Stations, Inc., 07-582 (U.S. Mar. 17, 2008).  News report here.

Blawgletter thought our Gentle Readers deserve a recapitulation of the FCC's position and the appeals court's decision.  Here goes our post from last June:

The FCC Would Find This Post Indecent

A 2-1 Second Circuit today held the Federal Communications Commission violated the Administrative Procedure Act by changing its policy on profanity on television broadcasts.  The court noted that, before 2003, the FCC hadn't classified the use of "fleeting expletives" as "profane" under 18 U.S.C. 1464.  Fox Television Stations, Inc. v. Federal Comm. Comm'n, Nos. 07-1760-ag, 06-2750-ag & 06-5358-ag (2d Cir. June 4, 2007).

The precipitating event involved the live broadcast of the Golden Globes Awards on January 19, 2003.  In accepting his Globe, musician Bono said "this is really, really, fucking brilliant.  Really, really great."  Reversing the decision of its Enforcement Bureau, the Commissioners concluded that "any use of any variant of 'the F-Word' inherently has sexual connotation and therefore falls within the scope of the indecency definition." 

In months that followed, the FCC applied its new policy to Cher for saying "People have been telling me I'm on the way out every year, right?  So fuck 'em."; to Nicole Richie for saying "Have you ever tried to get cow shit out of a Prada purse?  It's not so fucking simple.""; to characters in NYPD Blue for saying "bullshit," "dick", and "dickhead"; and to a Survivor:  Vanuatu contestant for calling another contestant a "bullshitter".

The majority held that the FCC hadn't adequately explained why it changed its policy from allowing the occasional expletive to punishing any.  The court pointed out that at oral argument lawyers used "the F-Word" many times.  But the opinion always put the "profane" words in quotation marks.

Unlike Blawgletter.  F&@k, yeah.

Our feed deeply regrets any offense.  Or does it?

A 2-1 Second Circuit today held the Federal Communications Commission violated the Administrative Procedure Act by changing its policy on profanity on television broadcasts.  The court noted that, before 2003, the FCC hadn't classified the use of "fleeting expletives" as "profane" under 18 U.S.C. 1464.  Fox Television Stations, Inc. v. Federal Comm. Comm'n, Nos. 07-1760-ag, 06-2750-ag & 06-5358-ag (2d Cir. June 4, 2007).

The precipitating event involved the live broadcast of the Golden Globes Awards on January 19, 2003.  In accepting his Globe, musician Bono said "this is really, really, fucking brilliant.  Really, really great."  Reversing the decision of its Enforcement Bureau, the Commissioners concluded that "any use of any variant of 'the F-Word' inherently has sexual connotation and therefore falls within the scope of the indecency definition." 

In months that followed, the FCC applied its new policy to Cher for saying "People have been telling me I'm on the way out every year, right?  So fuck 'em."; to Nicole Richie for saying "Have you ever tried to get cow shit out of a Prada purse?  It's not so fucking simple.""; to characters in NYPD Blue for saying "bullshit," "dick", and "dickhead"; and to a Survivor:  Vanuatu contestant for calling another contestant a "bullshitter".

The majority held that the FCC hadn't adequately explained why it changed its policy from allowing the occasional expletive to punishing any.  The court pointed out that at oral argument lawyers used "the F-Word" many times.  But the opinion always put the "profane" words in quotation marks.

Unlike Blawgletter.  F&@k, yeah.

Our feed deeply regrets any offense.  Or does it?

Reddy Ice Gets Grand Jury Subpoenas

Remember The Iceman Price Fixeth?  The post that reported a raid of Reddy Ice's Dallas headquarters by federal antitrust enforcer types? 

The raid now looks like the tip of a solid water object that floats and bobs in liquid water near the polar regions. 

The Annual Report on Form 10-K of Reddy Ice Holdings Inc. came out yesterday, March 14, 2008.  On page 24, the report includes this interesting paragraph:

  In March 2008, we and certain of our employees, including members of our management, received grand jury subpoenas issued from the U.S. District Court for the Eastern District of Michigan seeking information in connection with an investigation by the Antitrust Division of the United States Department of Justice ("DOJ") into possible antitrust violations in the packaged ice industry.  In addition, on March 5, 2008, federal officials executed a search warrant at our corporate office in Dallas, Texas.  We expect to make available documents and other requested information to the DOJ's Antitrust Division in connection with the investigation.  The subpoenas we and our employees received are part of a broader industry inquiry; at least one other packaged ice manufacturer has also received such a subpoena.  Senior management is not award that the Company has engaged in anticompetitive behavior, or other activities, which would violate the antitrust laws.  On March 6, 2008, our Board of Directors formed a special committee of independent directors to conduct an internal investigation of these matters.  The special committee's investigation is ongoing and the outcome of the investigation is unknown.  The special committee has hired special counsel to assist in its investigation.

Customers of Reddy Ice and its biggest rival, Arctic Glacier out of Winnipeg, have started filing class action lawsuits for price fixing -- three by our count so far in Minneapolis alone. 

Blawgletter expects to see one or more similar filings in Dallas federal court soon.

Our feed can seldom resist commodity puns.

Chocolate Probe Spreads to Chocolate-Making Country

The German Federal Cartel Office searched the premises of seven chocolate-makers on February 7, according to Bloomberg and Reuters today.  The searchees included Mars, Nestle, Kraft, and Ritter.

Possible price-fixing among dominant chocolate-makers surfaced last November with disclosure of search warrants in Canada and then the firing up of a U.S. probe by the Antitrust Division within the Department of Justice. 

Dozens of civil class actions followed in venues across the country.  The U.S. Judicial Panel on Multidistrict Litigation has set a February 19 deadline for responses to motions to centralize all the cases before a single district judge in Texas, Michigan, New Jersey, Virginia, or Pennsylvania.

Our feed melts in your mouth.