Blawgletter®

Power to Veto Doesn't Equal Power to Pick Under PSLRA, Ninth Circuit Says

 
The case involved NVIDIA stock, which didn't do too well.

The Ninth Circuit chided a district court today for usurping a right that the panel held belongs to the "lead plaintiff" in cases under the Private Securities Litigation Reform Act of 1995 -- the right to choose counsel for the putative class.

The PSLRA, as you'll recall, all but directs district courts to award the lead plaintiff crown to the one that lost the most on his, her, or its securities investment due to the fraud.  The court may demur but only for excellent reasons -- as where the biggest loser has gone stark raving mad or lives in a prison cell due to his own financial shenanigans.

The statute also gives courts power to veto the lead plaintiff's choice of counsel for the class.

The district court in Cohen v. United States District Court, No. 09-70378 (9th Cir. Nov. 5, 2009), forgot that a veto doesn't divest the chooser of the right to select.  His Honor named two co-lead plaintiffs as well as two co-lead law firms.  Which seems fine.  But one of the co-lead plaintiffs objected on the ground that the court ignored his pick and appointed as one of the co-lead counsel a law firm he didn't want.  The court rejected his gripe.

The Ninth Circuit disagreed.  It held, on co-lead plaintiff Roberto Cohen's mandamus petition, that the district court lacked power to install its own choice of class counsel:

Although it cannot be contested that the district court had the authority to reject Cohen's choice of lead counsel, it does not follow that having done so it had the authority to select lead counsel of its own choosing.  This argument misses the fundamental point that the PSLRA unambiguously assigns this authority to the lead plaintiff.

Id., slip op. at 14917.

Blawgletter wishes to point out a bonus footnote in the court's opinion.  There the panel poked at an issue that "none of the parties raise" -- the question of whether the PSLRA allows more than one lead plaintiff.  "While the PSLRA allows a group to serve as lead plaintiff, it also consistentlly refers to the lead plaintiff and most adequate plaintiff in the singular, suggesting that the district court should appoint only one lead plaintiff, whether an individual or a group."  Id. at 14921 n.4.  Mmmmm.  Dicta.

Our feed picked a peck of pickled peppers.

Motion to Vacate Arb Award Draws Sanctions in Tenth Circuit; Our "National Policy Favoring Arbitration"

A panel of the Tenth Circuit today affirmed an order that denied a motion to vacate an arbitrator's award in favor of Qwest, the telephone company. 

The movant, DMA International, accused the neutral of misdeeds but mainly called him dumb for reading an unclear contract such that he ruled that DMA couldn't get $3.7 million more than the $1.7 million Qwest already paid it.  The court of appeals held that, while DMA might have had a point or two, the arbitrator did his job well enough.  DMA Int'l, Inc. v. Qwest Communications Int'l, Inc., No. 08-1392 (10th Cir. Nov. 4, 2009).

Things grew worse.  Qwest had filed a motion against DMA's lawyers for taking a vexatious and frivolous appeal.  The panel granted the motion under both 28 U.S.C. 1927 and Federal Rule of Appellate Procedure 38.  It explained:

We fully appreciate the financial burden this decision will impose upon DMA's counsel.  But only by imposing sanctions in cases like this case we give breath to the "national policy favoring arbitration."  Hall St. Assocs. [v. Mattel, Inc.], 128 S. Ct. [1396,] 1405 [(2008)].  "If we permit parties who lose in arbitration to freely religitte their cases in court, arbitration will do nothing to reduce congestion in the judicial system; dispute resolution will be slower instead of faster; and reaching a final decision will cost more instead of less."  B.L. Harbert[ Int'l, Inc. v. Hercules Steel Co.], 441 F.3d [905,] 907[ (11th Cir. 2006)].  "If arbitration is to be a meaningful alternative to litigation, the parties must be able to trust that the arbitrator's decision will be honored sooner instead of later."  Id. at 913.  In this case, it was later.  Sanctions are therefore warranted to compensate Qwest for the unnecessary legal fees it was forced to spend defending the arbitration award on appeal.

DMA Int'l, slip op. at 8-9.

Blawgletter notes, wryly, that Chief Judge Easterbrook of the Seventh Circuit not long ago said this:

According to Health Grades, access to the information [that the parties to an arbitration agreed to keep secret] would undermine the national policy favoring arbitration.  There is no such policy.

"Party Can't Agree to Keep Docs Secret; Easterbrook the Activist", Blawgletter®, Sept. 3, 2009.  His Honor must've missed the Hall Street memo.

Clients Must Pay Full Contingent Fee, En Banc Ninth Circuit Holds

 
Richard Burton, as Hamlet, fussed about "the law's delay". 

The Ninth Circuit spans a vastness on our spinning globe -- from Window Rock, AZ, to Merizo, GM; from Border Field State Park, CA, to Barrow, AK; plus a lot in between. 

The biggest U.S. court of appeals also claims, oh, nearly 30 circuit judges.

Let's not advert to the degrees of Their Honors' philosophical separation.

Today the court ruled in an en banc configuration (11 out of the nearly three dozen) that none of its 12 brethren/sisteren circuit courts would recognize as such (because all their judges sit together for their en banc sessions).  The mini-full-court held, by the thinnest of margins (six-to-five), that the district court erred as a matter of law (and fact) by awarding lawyers less (a lot less) than the 25 percent contingent fee their clients agreed to pay them for recovering Social Security payments from a stingy federal government.  Crawford v. Astrue, No. 06-55822 (9th Cir. Nov. 3, 2009) (en banc) (sort of).

Two of the judges limited their dissent to the factual part of the ruling.  They agreed with the majority that the district court erred (in the three cases before the court) when it started with the attorneys' lodestar -- hours x hourly rates -- instead of the fee contracts.  But they added that the court of appeals ought to have let the lower courts apply the right standard in the first instance. 

The other three judges dissented in toto, urging that the district courts' fact-findings about reasonableness of fees must prevail over the attorney-and-client's contract for a 25 percent rate.

Blawgletter notes that, in the newest of the three cases before the court, more than five years had passed since its filing.  The other two involved delays, respectively, of over eight and in excess of 10 years.

The trio of cases presented the question of how to balance the client's interest in keeping as much of the recovery as possible against her or his promise to pay 25 percent of that amount as an attorney's fee.  The lawyers asked for -- and, under the court's ruling, will receive -- less than the percentage their clients agreed on.  We see no injustice there.

The issue of whether the district court deserved to assess the facts, with more room than the majority allowed it, strikes us as worth talking about.  Judging consists at its core of doing a judge's best to get the law and facts right.

Did the magistrate judges do otherwise?  No.  But they did take an unduly stingy view of the weight the law gives to contingent fee contracts between lawyers and clients.  We agree with the Ninth Circuit's en banc correction of their mistake of the law.

Our feed wonders what light on yon window breaks.

Ninth Circuit Sends Eurofraud Case to Warsaw

The first footnote in a Ninth Circuit opinion today tells why Vivendi's lawyers must love their client.

The French corporation . . . also has initiated litigation and arbitration proceedings in Poland, Austria, France, Germany, Switzerland, and the United Kingdom related to this same alleged fraud.

Vivendi, S.A. v. T-Mobile USA, Inc., No. 08-35561, slip op. at 14770 n.1 (9th Cir. Nov. 2, 2009).

Vivendi alleged that Deutsche Telekom, its U.S. and German T-Mobile offspring, and Polish billionaire Zygmunt Solorz-Zak conspired to wrest a Polish wireless telephone company, Polska Telefonia Cyfrowa, from Vivendi's grasp.  Vivendi filed the suit under the Racketeer-Influenced and Corrupt Organizations Act and common law fraud -- in the Western District of Washington, home of the Seattle Seahawks, who've gone 2-4 so far this season and lost yesterday to the Cardinals 27-3.

Why would a French telecom giant sue its German rival about who owned a Polish wireless operation in a place that calls itself the Rain City?  The district court couldn't figure out the answer either.  Nor could the Ninth Circuit.  Both ruled that the case belonged in Europe, specifically the Poland part.

Judge Posner Explains Why Opinions Mislead

Blawgletter sometimes rues the length of court opinions.  We indeed find the feeling more common as we progress a few months into our second half century.  And yet our patience has lately improved.

Judge Richard Posner helped today by explaining, in an ironically long opinion for him, why judicial sound bites can make bad law.  He cited a phrase, "literally false", which a plaintiff brandished as it might a knife that cut its opponents' defense to a Lanham Act claim to ribbons:

This is an unfortunately common example of a litigant misled by general language in judicial opinions.  Opinions would be even longer than they are if judges couldn't use short phrases to denote what may be complex legal doctrines.  When those phrases are taken to be exhaustive statements of entire doctrines with all the necessary qualifications, the result is likely to be a misapprehension of the law.  William Blake declared that "to Generalize is to be an Idiot.  To Particularize is the Alone Distinction of Merit."   That is a bit extreme; but uncritical generalization is a path to error.  One form of uncritical generalization, ironically in view of Schering's invocation of the doctrine of "literal falsity," is reading general language literally.

Schering-Plough Healthcare Products, Inc. v. Schwarz Pharma, Inc., No. 09-1438, slip op. at 20 (7th Cir. Oct. 29, 2009).

FIRREA Lets Case Stay Federal Even After FDIC Leaves, Fifth Circuit Holds

The Financial Institutions Reform, Recovery, and Enforcement Act grew out of the last big financial mess, this one during the 1980s and 1990s, when savings and loans and banks went belly up in large numbers.  Speculation and shady practices, you'll recall, accounted for many collapses.

Congress granted the outfit that guarantees deposits, the Federal Deposit Insurance Company, a lot of new powers.  Section 1819(b)(2) of FIRREA, for example, allows the FDIC to remove to federal court a state court case involving a bank once the agency becomes the bank's receiver. 

But what happens after the FDIC exits the case it removed?  May the district court send the lawsuit back to state court?

The Fifth Circuit said no yesterday in Adair v. Lease Partners, Inc., No. 08-60674 (5th Cir. Oct. 28, 2009).  FIRREA requires the federal court to keep the case because section 1819(b)(2) transforms all claims into ones that arise under U.S. law, thus conferring federal question jurisdiction, the court ruled. 

One judge concurred in the judgment only.  He felt that the majority went too far and should've based its decision on the fact that federal claims remained in the case, FIRREA or no FIRREA.

AT&T Can't Beat Class by Offer to Lose $7,500 Penalty, Ninth Circuit Holds

Say you bought a cell phone.  Suppose the outfit that sold it to you said you'd get it for "free".  Say also the seller -- let's call it AT&T -- billed you 7.75 percent of what the phone would've cost if you'd purchased it at retail.  How would you feel about the freeness of the phone?

Not so good, Blawgletter guesses.  And yet the seller -- which we must still refer to as AT&T -- insists it did nothing wrong.

Alright.  Fine.  Okie dokie.

But AT&T takes things further.  It also adds to its contracts with customers like you a clause that bars you from suing on behalf of anyone else.  The attempt has worked in some states but seldom in federal court.

Which fact seems to have persuaded AT&T to add a sweetener, at least in the Golden State.  If you, the California customer, convince the arbitrator to award more than AT&T offered in settlement, you get a smacking $7,500.  But the district court and Ninth Circuit didn't accept the AT&T argument.  The latter said, in holding the class ban unconscionable under state law:

The $7,500 premium is available only if AT&T does not make a settlement offer to the aggrieved customer in a sum equal to or higher than is ultimately awarded in arbitration, and before an arbitrator is selected.  This means that if a customer files for arbitration against AT&T, predictably AT&T will simply pay the face value of the claim before the selection of an arbitrator to avoid potentially paying $7,500.  Thus, the maximum gain to a customer for the hassle of arbitratng a $30.22 dispute is still just $30.22. . . . As a result, aggrieved customers will predictably no file claims -- even if the odds are that after the letter-writing and arbitrator choosing they will get a $30.22 offer -- thereby "greatly reduc[ing] the aggregate liability" AT&T faces for allegedly mulcting small sums of money from many consumers.

Laster v. AT&T Mobility LLC, No. 08-56394, at 14397-98 (9th Cir. Oct. 27, 2009).

 Our feed admires the brevity of Circuit Judge Bea.

Second Circuit Stops Forum Non Transfer to Buenos Aires

May lenders to an Argentine consortium that won a concession to furnish sewer and water in Buenos Aires enforce choice of forum clauses against an outfit that succeeded to the concession after the first one went belly up?  Perhaps, the Second Circuit held yesterday.

In Aguas Lenders Recovery Group LLC v. Suez, S.A., No. 08-1589-cv (2d Cir. Oct. 23, 2009), a collection of lenders formed the Aguas Lenders Recovery Group and used ALRG to sue Agua y Saneamientos Argentios, S. A., to recover money that the lenders loaned years before to the original concession-holder, Aguas Argentinas, S.A.  ALRG alleged that Agua & Saneamientos owed the funds as the "successor" to Aguas Argentinas.  The district court dismissed under the forum non conveniens doctrine, which allows U.S. courts to require plaintiffs to bring suit in another country.

The Second Circuit reversed.  The panel wrote that the successor theory, if viable, would bind Aguas y Saneamientos to the contracts between Aguas Argentinas and the lenders.  That included the clauses that called for venue in New York and waived any forum non defense to suit in New York.  The court remanded the case for a ruling on whether New York or Argentine law applies and whether Agua y Saneamientos counts as Aguas Argetinas's legal successor.

Year Without Discovery Favors Death to Complaint, Seventh Circuit Holds

Do people who bought stock at, say, $75 a share and who sell it at, oh, $80 per deserve our concern?  Even if the company whose shares rose in value lied about something important, causing the price to dip before recovering?

The Seventh Circuit today said ix-nay on the orry-way but did it in terms of whether the district court abused its discretion in dismissing the securities fraud complaint "with prejudice".  No, the panel ruled.  Fannon v. Guidant Corp., No. 08-2429 (7th Cir. Oct. 21, 2009).

Imagine that.

But what strikes Blawgletter as interesting -- a low hurdle, we admit -- arises from how the court explained why a dismissal with prejudice fell within the district court's discretion.  Because the trial judge "gave the plaintiffs about a year to review and investigate the case, and then to file a consolidated complaint",  id., slip op. at 11, "[t]he district court was entitled to view this case as one in which the plaintiffs had, as a practical matter, a number of opportunities to craft a complaint that complied with the standards of the PSLRA", id. at 12-13.  "It was therefore entitled to bring this litigation to a close with a dismissal with prejudice."  Id. at 13.

So:  "about a year to review and investigate the case" -- without discovery! -- makes dismissal with prejudice an okay thing.

Imagine that.

Fifth Circuit Joins Second on Global Warming Suits

 
Hurricane Katrina hit Louisiana and Mississippi on August 29, 2005.

On September 23, Blawgletter reported that the Second Circuit revived a complaint that tied CO₂ emissions to global warming under a public nuisance claim. 

Last Friday, the Fifth Circuit reached the same result in a case arising from Hurricane Katrina.  A class of Mississippi property owners alleged in Comer v. Murphy Oil USA, No. 07-60756 (5th Cir. Oct. 16, 2009), that carbon dioxide warmed the globe and made Katrina extra fierce.  Of the Yankee court's decision, the panel said:

The Second Circuit Court of Appeals recently [held] that the case was justiciable. . . . Although we arrived at our own decision independenlty, the Second Circuit's reasoning is fully consistent with ours, particularly in its careful analysis of whether the case requires the court to address any specific issue that is constitutionally committed to another branch of government.

Id., slip op. at 29 n.15.  One judge wrote that, ihho, the complaint didn't state a viable claim and that he would, if he had his way, affirm dismissal on that ground.

Our feed has calm in its eye.