Spitzer, Liberty, IAC, Total, Lilly in Court News

By Elizabeth Amon

March 14 (Bloomberg) — New York Governor Eliot Spitzer, who
resigned March 12 amid allegations that he patronized
prostitutes, is now in a legal fight to avoid criminal charges.
Spitzer, 48, stepped down after the New York Times reported
he was “Client 9 of an call-girl ring whose
operators were charged with crimes last week. Spitzers lawyers
need to persuade the U.S. government not to file related charges
against him because he allegedly summoned prostitutes to
Washington and paid them secretly, former prosecutors said.
Prosecutors are more likely to consider going after Spitzer,
a Democrat, for money laundering or misusing his office than for
prostitution because customers of call girls are rarely pursued
by federal authorities, the lawyers and ex-prosecutors said.
“Given the rarity of federal prosecutions of this kind of
conduct, the motives of the prosecutors might be called into
question, said Steven Peikin, a former U.S. prosecutor in
Manhattan. “The facts that are not well known are those
surrounding the financial transactions. That would be an area of
greater concern.
U.S. Attorney Michael Garcia in New York declined to say
after the resignation if hes investigating Spitzer. He said only
that “no agreement has been reached with the governor. A call
to Garcias office yesterday for comment on any talks with
Spitzers lawyers was not returned.
Spitzer may be open to charges that he violated the Mann
Act, which makes it a crime to transport someone across state
lines for prostitution, lawyers said.
He could also be charged with wire fraud, if he made false
statements about the source or destination of his funds;
structuring, if he made payments to avoid U.S. requirements on
reporting cash transactions of more than $10,000; or money
laundering, if he knew the ring was using front companies to move
money illegally, lawyers said.
The assistant prosecutor handling the case against the
prostitution ring is chief of Garcias public corruption unit,
formerly headed by Spitzers lead lawyer Michele Hirshman.
Spitzers defense team also includes Theodore Wells, who
unsuccessfully defended former vice presidential aide Lewis
“Scooter Libby last year for lying about the leak of the
identity of a U.S. intelligence agent, and Mark Pomerantz, who
won a reversal of an obstruction conviction in 2006 of former
banker Frank Quattrone. All three are lawyers with
the New York firm of Paul, Weiss, Rifkind, Wharton %26amp; Garrison.
Spitzers attorneys, who declined to discuss the case,
probably will press numerous arguments to persuade prosecutors
not to bring charges, the defense lawyers said.
“Id approach it by saying to the U.S. Attorneys Office
that if you prosecute me, youve got to prosecute Clients 1-8,
said William Mateja, who formerly helped oversee the Justice
Departments Corporate Crime Task Force. “They dont want to be
accused of selective prosecution, a potential legal defense.
The other eight clients mentioned in the criminal complaint
havent been identified by prosecutors.
Prosecutors may have a tough time supporting a structuring
charge, said Joshua Hochberg, who once headed the Justice
Departments fraud section. “Im not clear whether the financial
transactions were done in any way to evade a reporting
requirement, said Hochberg, a lawyer in Washington with
McKenna, Long %26amp; Aldridge.
Money laundering isnt a common charge in prostitution
cases, said Mark Arnold, a former secrecy auditor at Wells
Fargo %26amp; Co. “If you go out and do money laundering, usually its
for tax evasion, he said.
Based on the likely charges, “it seems unlikely Spitzer
will spend time in prison, Douglas Muzzio, a Baruch College
political science professor, said in an interview yesterday with
Bloomberg Radio.
Asks Bankruptcy Judge to Stay Enron `Mega-Claim Case
Inc. asked a federal bankruptcy judge to delay the
trial in a lawsuit filed against it by Enron Corp. while the
seeks to have the case transferred to a higher court.
Attorneys for the biggest U.S. by said in a
letter March 12 to U.S. Bankruptcy Judge Arthur Gonzalez that a
trial in the so-called mega-claims case scheduled for April
should be delayed until after the U.S. District Court in New York
rules on whether it will take over the dispute.
“As a matter of and basic fairness,
should only have to defend itself at trial once and should not
have to expend the considerable resources to prepare around-the-
clock for a trial that may very well not take place,
attorneys from Paul Weiss Rifkind Wharton %26amp; Garrison wrote.
Enron filed the case in 2003, seeking to hold banks liable
for the roles they may have played in the fraud that brought down
the energy-trading company. The Houston-based firm, now known as
Enron Creditors Recovery Corp., is asking for about $20 billion,
including damages and the return of payments.
“If Citi was truly confident in its legal position in the
Enron litigation, they would not be seeking a stay, Enron
creditors Harlan Loeb of Financial Dynamics said in an
e-mail yesterday.
is the sole remaining defendant and has said the
suit is meritless. The asked the district court to take the
case from Gonzalez in December, saying it wanted a jury trial.
The then asked Gonzalez Jan. 7 to throw out most of the
suit, saying Enron Creditors Recovery doesnt have standing to
pursue creditors claims. A hearing before Gonzalez is scheduled
for March 18.
Enron was the worlds largest energy-trading company, with a
market value of as much as $68 billion, before it imploded amid
allegations of accounting fraud. The companys bankruptcy, the
second-largest in U.S. history after WorldCom Inc., wiped out
more than 5,000 jobs and at least $1 billion in retirement funds.
The adversary case is Enron Creditors Recovery Corp. v.
Inc., 03-9266, and the bankruptcy case is In re Enron
Corp., 01-16034, U.S. Bankruptcy Court, Southern District of New
York (Manhattan).
For more lawsuits news from yesterday, click here.
New Suits
of America, Wachovia Conspired to Rig Bids, Suits Say
of America Corp., Wachovia Corp. and 35 other financial
institutions conspired to rig bids in municipal derivatives in
violation of U.S. antitrust law, Mississippi, Chicago and other
bond issuers said in a lawsuit.
Bankers, brokers and dealers engaged in an illegal agreement
“to not compete and to rig bids for municipal derivatives sold
to issuers of municipal bonds, according to a complaint against
of America and a companion suit against other defendants
filed March 12 in federal court in Washington. The lawsuits were
filed by Fairfax County, Virginia, the city of Chicago, the state
of Mississippi and others, as potential class actions seeking
unspecified damages on behalf of all municipal bond issuers.
“Were asking them to recalculate what the market would
have been because there was clearly collusion among the
dealers, said attorney Michael Hausfeld, who represents the
government plaintiffs. The alleged “collusion began as early as
1992, Hausfeld said.
The civil lawsuits follow a federal criminal investigation
into the municipal bond market. About 30 large commercial and
, insurance companies and brokers were subpoenaed
and employees of several of the defendants received letters
notifying them that they are targets of a grand jury
investigation in New York, the plaintiffs said in the suit.
of America has been cooperating with Fairfax and the
other plaintiffs and is nearing a settlement, Hausfeld said in an
interview yesterday. of America wasnt involved in the
market until 1998, he said.
of America spokeswoman Shirley Norton declined to
comment on the lawsuit, while confirming settlement .
“We have been working with and cooperating with the
plaintiffs for some time, she said in an interview.
Wachovia spokeswoman Christy Phillips-Brown declined to
comment.
The other defendants include Cos., AIG
Financial Products Corp., AG, Holdings Inc.,
%26amp; Co., , Morgan Keegan %26amp; Co. and
Societe Generale SA.
The cases are Fairfax County, Virginia v. of America,
08-00433, and Fairfax County v. Wachovia , 08-00432, both in
U.S. District Court, District of Columbia (Washington).
For more new suits news from yesterday, click here. For copies of
recent civil complaints, click here.
Trials
Libertys Controlling IAC Stifles Growth, Diller Says
Liberty Media Corp.s controlling in
IAC/InterActiveCorp is an obstacle to the growth of the Internet
and media company, IAC Chairman Barry Diller testified at a trial
over a spinoff plan.
Diller said his bid to spin off four units with a single-
class stock structure is the best way to avoid interference from
Liberty. Liberty Chairman John Malone, whose company owns a
30 percent in IAC, is challenging Dillers proposal, which
would halve its voting control.
“Libertys management has been extremely negative about
many of those operations, publicly and privately, Diller told
Delaware Chancery Judge Stephen Lamb yesterday. “For these
companies to be truly independent, the spinoffs had to be set
up in a way that removed Libertys dominance, he said.
Diller, 66, is dueling with Malone over control of the
company he built with Malones help starting in 1995. Liberty
Medias includes shares that amount to more than 60 percent
of the companys voting rights. Diller has the right to vote
those shares, except in certain circumstances, under an agreement
with Malone.
Malone, 67, wants a two-tier structure to maintain his
control. He criticized Dillers performance in running IAC and
his compensation in testimony earlier this week.
Diller said he became convinced that Libertys control would
crimp the operations of the spinoffs. They include HSN Home
Shopping Network, No. 1 ticket broker Ticketmaster, time-share
manager Interval , and online mortgage company
LendingTree.
Because Liberty officials have been “extremely critical
of the spinoffs, Diller said the best way to give them time to
find their “sea legs was to set them up with a single class of
stock.
On cross-examination, Liberty attorney Kevin Abrams
questioned Diller about the financial health of IAC and its
.
Diller acknowledged IACs market value has plummeted from a
high of $22 billion five years ago to about $6 billion today.
Still, he defended the growth of units such as Ask.com and
Ticketmaster.
“Weve had these spikes over the years, Diller said.
“Around 2000, we looked like the Swiss Alps, he said of charts
showing the companys stock price.
A lawyer for IAC said earlier yesterday that executives from
the Internet company and Liberty have held talks about settling
the dispute over the spinoff plan.
“There are settlement discussions, said Pamela Seymon, an
attorney with at New Yorks Wachtell Lipton Rosen %26amp; Katz who
helped negotiate the agreement that gave Diller the right to vote
Libertys shares. She said the talks involved proposals to swap
between the two companies.
Diller said hes rejected offers to swap with Liberty
“many, many times since 2006. “It wasnt for lack of desire.
They never got to the value that we could take to our board.
The consolidated case is In re IAC/InterActiveCorp, CA3486,
Delaware Chancery Court (Wilmington).
Total Not Liable for All Erika Spill Costs, Court Aide Says
Total SA, Europes third-largest oil company, may not be
liable for all of the costs a French community incurred cleaning
up the damage caused by the oil tanker Erika, an adviser to the
European Unions top court said.
law limits Totals liability to pay for the
cleanup stemming from the Erika spill, the adviser said in an
opinion yesterday. The French district of Mesquer, which is 200
(124 miles) south of the spot in Brittany where the
Erika sank, is suing Total for almost 70,000 euros ($109,000).
Total is only liable for all of the costs if “the damage
was caused intentionally or recklessly, said Juliane Kokott, an
advocate general at the Luxembourg-based Court of Justice. The
court follows this legal advice in a majority of cases.
The 1999 environmental disaster killed tens of thousands of
birds and polluted 400 of coast. The community of
Mesquer on the western coast of France, argues that under EU
legislation the Paris-based company is solely responsible for the
cleanup. Such a ruling would cause “utter chaos, Totals
lawyers argued.
A Total spokeswoman didnt return a call seeking comment on
the opinion.
EU waste disposal rules “should simply not apply to coastal
pollution by heavy fuels, Total lawyer Jean-Paul Hordies told
the EU court at a Jan. 22 hearing.
rules, which are binding on France, have to be
considered, Kokott said in her opinion. A French court had
referred the dispute to the EU Court of Justice for .
The Liability Convention for oil pollution
damage “precludes any claim for compensation in France against
anyone other than the owner of the ship, unless the damage was
caused intentionally or recklessly, Kokott said.
The case has no legal relationship to a separate French
lawsuit where Total was ordered in January to pay a share of a
more than 190 million-euro fine for the incident. Mesquer
received 500,000 euros in that ruling.
The case is C-188/07 Commune de Mesquer v Total France, SA,
Total Ltd.
For more trial news from yesterday, click here.
Verdicts/Settlements
National Century Executives Convicted in Fraud Case
Five former executives at National Century Financial
Enterprises Inc. were convicted of cheating investors out of
$2 billion before the health-care financing companys bankruptcy
in 2002.
Jurors in federal court in Columbus, Ohio, yesterday
convicted Donald Ayers, Rebecca Parrett, James Dierker, Roger S.
Faulkenberry and Randolph Speer of conspiracy charges. All except
Dierker also were found guilty of fraud. Former
Officer Lance Poulsen faces a witness-tampering trial on
and a separate fraud trial in August.
The company, based in Dublin, Ohio, loaned money to
struggling health-care providers and claimed to secure the loans
with incoming payments that backed bonds sold to investors,
prosecutors said. Many receivables were worthless IOUs, forcing
National Century to use new money to pay old investors,
prosecutors said.
“The case started years ago with the defendants lies and
the chapter was closed with the verdict, Assistant U.S.
Attorney Douglas Squires said. Lawyers for all five defendants
said they plan to appeal.
The jury of four men and eight women deliberated three days
before returning guilty verdicts on all counts against Ayers, 71,
and Parrett, 59, who co-founded the company with Poulsen, 64;
Speer, 57, a former chief financial officer; Faulkenberry, 46, a
former vice president of securitizations; and Dierker, 39, an ex-
vice president of client development.
All five were convicted of conspiracy to commit securities
and wire fraud, and conspiracy to commit money laundering. All
except Dierker were convicted of securities fraud. Parrett, Speer
and Faulkenberry were convicted of wire fraud. Speer,
Faulkenberry and Dierker were convicted of money laundering.
Each faces a maximum sentence of 20 years in prison on the
most serious counts. U.S. District Judge Algenon Marbley said he
will sentence the defendants in 70 to 90 days and denied
prosecutors request to jail them immediately. He ordered house
arrest for Parrett and Ayers and electronic monitoring for the
other three.
The case is U.S. v. Poulsen, 06-129, U.S. District Court,
Southern District of Ohio (Columbus).
Lilly Loses Bid to Overturn Zyprexa Generic Approval in Canada
Eli Lilly %26amp; Co., the worlds biggest maker of psychiatric
medicines, lost a bid to overturn Canadas approval of Novopharm
Ltd.s generic version of the antipsychotic treatment Zyprexa.
The Canadian Supreme Court in Ottawa yesterday refused to
hear Lillys appeal of lower-court decisions that allowed
Novopharms generic version of the drug. As is standard practice,
the nations top court gave no reason for its decision.
Zyprexa is approved by the U.S. Food and Drug Administration
and Canadian to treat schizophrenia and bipolar
disorder. Sales rose 9 percent to $4.76 billion last year, about
a quarter of Lillys revenue. Novopharm challenged the validity
of Lillys patent for olanzapine, a main ingredient in the drug,
and won at trial June 5.
The decision by Federal Court Judge Roger Hughes was upheld
by the Federal Court of Appeal. After winning at trial, Novopharm
received a notice of compliance from the Canadian government,
allowing it to produce a generic version using olanzapine.
Lilly, based in Indianapolis, asked the Canadian courts for
an order prohibiting the government from allowing Novopharm to
sell the drugs. Lilly officials didnt respond to a request for
comment on yesterdays ruling.
Novopharm, a unit of Petah Tikva, Israel-based Teva
Pharmaceutical Industries Ltd., claimed in 2005 that the patent
for olanzapine was invalid for reasons of obviousness and double
patenting. The U.S. Court of Appeals for the Federal Circuit
upheld Lillys patent in a 2006 challenge by Tevas Ivax unit.
Hughes, in his trial ruling, rejected Lillys request to
take the U.S. decision into consideration.
The case is Eli Lilly Canada Inc. and Novopharm Ltd., 32415,
Supreme Court of Canada (Ottawa).
For more verdict and settlement news from yesterday, click here.
Litigation Departments
Washington Contracts and Litigation Team Join Brown Rudnick
An eight-lawyer government contracts %26amp; litigation group,
lead by partners Kenneth B. Weckstein and Daniel B. Abraham, has
moved from the law firm of Epstein Becker %26amp; Green in Washington
to Brown Rudnick, the firm said in a statement March 12.
“They are a skilled, aggressive group of litigators who
represent an impressive portfolio of Fortune 500 companies,
Brown Rudnick Officer Joseph F. Ryan said in the
statement. “Their practice focus enhances the breadth and depth
of the legal services we offer clients at the federal level.
The practice helps clients resolve complex disputes in both
public contract and commercial settings. Its representative
experience spans a wide range of matters including bid protests,
contract claims, wage and hour disputes, compliance
investigations, trade secret disputes, complex commercial
litigation, government contract related to mergers
and , and counseling to avoid litigation.
Brown Rudnick has 200 lawyers in seven offices in and
the U.S.
For more litigation department news from yesterday, click here.
Court News
Judicial Misconduct Rules Adopted to Standardize the System
New rules creating a national system of procedures for
judicial wrongdoing were adopted by the Judicial Conference,
Legal Times newspaper reported March 12.
The federal judiciarys policymaking body created the rules
to end the inconsistencies in how circuit courts handle
complaints of judicial misconduct.
The new rules, which are binding, delineate when a chief
judge should initiate a proceeding, create committees to
investigate significant complaints and provide for the
investigations to be transferred to another circuit when there is
a conflict, Legal Times said.
There are 600 to 800 complaints made annually against
judges, according to the article, with one in 100 resulting in
further investigation.
On The Docket
Pfizer Trial Over Trovan in Nigeria Postponed Until April 28
A northern Nigerian court set preliminary arguments for
April 28 in a lawsuit against Pfizer Inc. executives facing
criminal charges for a 1996 meningitis drug trial that allegedly
killed 11 children, reported.
Pfizer, the worlds biggest drugmaker, used the meningitis
drug Trovan in a trial involving 200 children during an epidemic
in the northern city of Kano. Prosecutors allege 11 children died
and scores were permanently disabled because of the drug and have
pressed criminal charges against eight Nigerian and expatriate
employees of Pfizer believed to have been involved in the trial.
Pfizer is also facing a civil suit brought by the Kano state
government, which is seeking $2.75 billion in damages.
Another civil suit brought in Nigerias capital, Abuja, by
the federal government is seeking $7 billion in damages from
Pfizer. Federal prosecutors also are pressing criminal charges
against the New York-based company.
Pfizer denies any wrongdoing in the drug trial, insisting it
secured the consent of the government and families involved. It
says the experimental drug saved lives and harmed no one.
For Bloomberg articles by lawyers on litigation topics, click
here.
For news about bankruptcy litigation, click here. For news about
intellectual property litigation click here.
To contact the reporter on this story:
Elizabeth Amon in Brooklyn, New York at eamon2@bloomberg.net.

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