The BLT: The Blog of Legal Times

The Morning Wrap

BofA Settlement: Bank of America Corp., the biggest U.S. bank, agreed to pay $8.5 billion to resolve claims over soured mortgages after bondholders demanded refunds, Bloomberg reports.

Arlington Probe: The Justice Department is investigating the mishandling of remains at Arlington National Cemetery in a broad criminal inquiry that is also seeking evidence of possible contracting fraud and falsification of records, according to the Washington Post.

Madoff Judge Speaks: In perhaps the most stunning and widely discussed sentencing in the history of American white-collar crime, Judge Denny Chin imposed a term of 150 years on Bernard Madoff. Two years later, his recollections resurrect all the anger, shock and confusion that surrounded Mr. Madoff’s crimes, and provide a rare peek at the excruciating pressure faced by a judge who had to balance the law, the public’s emotions and his own deeply held beliefs while meting out a sentence that was just and satisfied the court’s need to send a message, The New York Times reports.

Loughner in Court: A hearing is set for Wednesday to challenge a decision to forcibly medicate Arizona shooting suspect Jared Lee Loughner in a federal prison hospital, CNN reports.

Bogged Down: Advanced talks have bogged down on a multibillion-dollar deal between Switzerland and the United States over Swiss banks helping Americans to shield their money from the U.S. taxman, Reuters reports.

London-based Allen & Overy Announces Plans for New Washington Office

Allen & Overy announced Wednesday plans to open a new Washington, D.C. office. The firm will be adding three new partners to lead the new operation.

Barbara Stettner, Chris Salter and Charles Borden, previously with O’Melveny & Myers in Washington, will join Allen & Overy when the firm opens its newest office in mid-July. Stettner and Salter were partners at O'Melveny, and Borden was counsel.

“Our vision is to have a global regulatory group that is deep in the number of people and the regulatory areas that each of those people cover,” said Kevin O’Shea, Allen's U.S. managing partner.

By expanding to Washington, O’Shea said the London-based firm would increase its U.S. presence in areas like intellectual property, Federal Communications Commission enforcement and litigation, antitrust and the Foreign Corrupt Practices Act.

O’Shea said the firm hopes to employ 10 partners with a total of 40 to 50 people working in its K Street office by the end of the year. He said this would be a realistic goal and would consider it a great accomplishment.

“We are going to add laterally and our expectation is that a number of the O’Melveny associates will follow the partners that they work for,” O’Shea said.

Stettner has experience advising broker-dealers and financial institutions on domestic and cross-border regulatory and compliance obligations, according to an Allen & Overy press release.

Salter brings experience advising hedge funds and private equity funds on compliance with federal securities laws. Borden focuses on the intersection of law and public policy to advise financial institutions.

Wilmer Tries to Head Off $214 Million In Malpractice Payments

Wilmer Cutler Pickering Hale and Dorr is facing the prospect of making $214 million in payments to one of its clients, in what would be an unusually large settlement of a malpractice claim.

Whether Wilmer will be forced to make the payments is still up in the air, depending largely on the outcome of litigation and on legislation moving through Congress. William Perlstein, Wilmer’s co-managing partner, who signed a settlement in February outlining the possible payments to New Jersey-based pharmaceutical company The Medicines Co., said on Tuesday he’s confident it will prove unnecessary.

The amount of money at stake potentially puts the case among the largest public settlements for legal malpractice ever, people who work in the field say.

The malpractice claim has its origins a decade ago, when Wilmer was representing The Medicines Co. in its bid to extend the patent for Angiomax, an anti-blood-clotting drug. The U.S. Patent and Trademark Office ruled that Wilmer lawyers filed the extension application at least a day after a key deadline — a decision that threatened to cost the drug company five years of exclusive drug sales.

In a major win for Wilmer and The Medicines Co., a federal judge last year vacated the patent office’s decision and cleared the way for the patent extension to go forward. If nothing changes, Wilmer is not expected to have to pay the $214 million.

The issue is still alive, though, because one of the drug company’s competitors has appealed to the U.S. Court of Appeals for the Federal Circuit. The case is pending there. (The patent office decided not to appeal.)

Former Wyoming Governor Freudenthal Joins Crowell & Moring

Former Wyoming Governor David Freudenthal (D) has joined Crowell & Moring as a senior counsel in the firm’s Environment & Natural Resources group, the firm announced Tuesday.

Freudenthal brings a wealth of experience and credibility to Crowell in the realm of coal and natural gas production, said Chet Thompson, chairman of the practice group. Thompson said Freudenthal’s knowledge earned him the respect of Democrats and Republicans alike. Freudenthal will advise clients on issues like water and air quality as well as climate change, oil and gas production and hydraulic fracturing.

“We are confident that his experience will be of great value to our national and global clients interested in developing energy projects in line with increasingly complex environmental regulations,” said Kent Gardiner, Crowell's chairman, in a statement.

Before he was elected governor in 2002, Freudenthal served as U.S. Attorney for the District of Wyoming from 1994 to 2001. In 2010, Freudenthal joined the University of Wyoming College of Law as a visiting professor, where he leads seminars on environmental law, energy and economics. Freudenthal’s two terms as governor ended in January.

Freudenthal will be based out of Crowell's Cheyenne, Wyo. office.

$230M Returned to the U.S. in SEC Case That Could Test Agency's Reach

In a case that may test the global reach of the U.S. Securities and Exchange Commission, the agency announced on Tuesday that it had $230 million held in a hedge fund's offshore account returned to the United States, where it will remain frozen while the agency's fraud case proceeds.

The SEC in January charged Francisco Illarramendi and his unregistered investment advisory firm Michael Kenwood Capital Management with running a Ponzi scheme in a case filed in U.S. District Court for the District of Connecticut. The agency went on to add Stamford, Conn.-based Highview Point Partners LLC as a relief defendant for allegedly holding funds tainted by the Ponzi scheme.

Highview, represented by Kevin O’Connor and James Needham of Bracewell & Guiliani and Harry Davis and Michael Swartz of Schulte Roth & Zabel, protested vigorously that the SEC couldn’t freeze the money because the agency lacks international jurisdiction.

“The Highview Offshore Funds are offshore entities, organized and existing under the laws of the Cayman Islands... [and] the funds’ assets are held in an offshore bank account in Amsterdam,” O’Connor wrote in court papers filed in May.

The SEC’s request to freeze the funds was made under Section 21 of the Securities Exchange Act of 1934, which O’Connor argued “allows the commission to obtain equitable relief, as appropriate, to enforce United States securities laws, but, it cannot be applied extraterritorially to reach a foreign defendant that does not trade in domestic securities.”

Last year, the U.S. Supreme Court in Morrison v. National Australia Bank Ltd. held that the Exchange Act does not have any extraterritorial effect, O’Connor stressed. Therefore, the SEC “cannot sustain its cause of action against the Highview Offshore Funds, according to Morrison.”

But Judge Janet Bond Arterton read the decision more narrowly. “While Morrison focuses on whether the Exchange Act can proscribe securities trading conduct abroad, Section 21 of the Act, under which the SEC brings its claim for injunctive relief against the Highview Funds, focuses on what relief the commission may obtain to protect investors,” she wrote.

“There is no claim that the conduct itself occurred extraterritorially. Since Morrison does not limit the commission’s authority to seek equitable extraterritorial relief to protect investors who are the victims of U.S.–based securities laws violations, Section 21 of the Exchange Act provides proper authority for the relief sought by the commission,” she held.

Arterton ordered the assets returned to the United States and frozen. The receiver, John Carney, is represented by lawyers from Baker & Hostetler led by Christina Tsesmelis.

“In this case, the ability to freeze and repatriate the alleged financial crime proceeds was critical to the SEC’s effective enforcement of the U.S. securities laws,” Ethiopis Tafara, director of the SEC’s Office of International Affairs, said in a news release.

The SEC’s litigation effort is being led by Rua Kelly and Kathleen Shields.

Defendant Illarramendi was represented by a team including Colleen O’Loughlin of Bingham McCutcheon and Fernando Koatz of Gleason & Koatz. Illarramendi pled guilty to criminal charges in March.

Investment advisory firm Michael Kenwood Capital Management was represented by Adam Reinhart and Richard Jacobson of Arnold & Porter and continues to be represented by Thomas Goldberg of Day Pitney.

Bahamanian Bank, Law Firm Want $14M Mystery Account Lawsuit Thrown Out

In a case that reads "straight out of a Hollywood script — or at least a second-rate mystery novel," according to one Washington judge, two Bahamas-based companies are seeking dismissal of lawsuit that accuses them of conspiring to hide a $14 million offshore bank account.

Tonya Day, a Las Vegas resident, filed suit in August 2010 in U.S. District Court for the District of Columbia against The Cornèr Bank (Overseas) Ltd. and law firm Graham Thompson. Day claimed that her mother, shortly before she died in a car accident, spoke of a $14 million account at a "corner bank" and noted that account numbers were printed on a sticker on the back of a painting in her possession.

Day alleges that when she tracked down Cornèr Bank in Nassau, she was told no such account existed. She claims she hired a Nassau-based firm, Graham Thompson, only to learn later on that the firm was also representing the bank at the time.

Graham Thompson filed a motion to dismiss (PDF) yesterday and Cornèr Bank filed its motion to dismiss (PDF) today. Both companies argue that there is no jurisdiction for the case to proceed in Washington.

Day is being represented by George Lambert of the Law Office of Leonard Suchanek in Washington, who declined to comment. Cornèr Bank is being represented by Mark MacDougall and Lauren Kerwin of Washington’s Akin Gump Strauss Hauer & Feld, and Graham Thompson is being represented by Hogal Lovells’ Albert Turnbull and Shardul Desai; they also declined to comment.

In a previous ruling (PDF) earlier this month denying a motion to dismiss based on how the complaint was served and a motion for sanctions, Chief Judge Royce Lambert wrote that Day’s complaint (PDF) “details a sordid affair straight out of a Hollywood script—or at least a second-rate mystery novel.”

Day claims that her mother’s long-time romantic partner had set aside money in a bank account with funds from his various investments in an oil business. According to the complaint, Day said her mother revealed the Nassau account to her in 2006 because she “had a premonition of dying soon and wished to reveal to her something.”

Several months later, Day’s mother was killed by a drunk driver before she could give Day any more details or provide documentation; Day doesn't mention the existence of a will. Day found the numbers printed on the back of the painting her mother had told her about and tracked down the Cornèr Bank in Nassau.

A bank official told Day that such an account didn’t exist, so she hired Graham Thompson to help her pursue the claim. Graham Thompson had unrelated business with the bank, and notes in its motion to dismiss that it withdrew as counsel several days later.

In addition to arguing for dismissal on the grounds that the case has no ties to Washington, Cornèr Bank has repeatedly denied that the account exists.

NLJ's Marcia Coyle on the News Hour

The National Law Journal's Marcia Coyle discusses Monday's Supreme Court action on the PBS News Hour, including the 7-2 ruling tossing out California's violent video games ban and the 5-4 decision overturning a portion of Arizona's campaign finance law.

Watch the full episode. See more PBS NewsHour.

 

Senate Confirms Three High-Level DOJ Nominees

The top ranks of the U.S. Justice Department are almost at full strength, after the Senate today confirmed nominees for three high-level spots that had been vacant for months or years.

Deputy Attorney General James Cole, who’s been serving on an acting basis in DOJ’s No. 2 position, was the most divisive of the nominees because of his support for using civilian courts to try suspected terrorists. He won confirmation 55-42 and succeeds David Ogden, who stepped down in February 2010 to return to Wilmer Cutler Pickering Hale and Dorr.

DOJ’s Office of Legal Counsel will have its first Senate-confirmed head since 2004, after heated battles over the definition of torture and other national-security questions kept senators from confirming nominees. Virginia Seitz, a partner in Sidley Austin’s Washington office, won confirmation on a voice vote and succeeds Jack Goldsmith, now a professor at Harvard Law School. The office has received attention most recently for its role in determining the legality of U.S. involvement in Libya.

And DOJ’s National Security Division will be led by Lisa Monaco, a former career department official who has been serving as Cole’s top deputy. Monaco won confirmation on a voice vote and succeeds David Kris, who resigned in March to become general counsel at Intellectual Ventures, a technology company based in Bellevue, Wash.

Together with the Senate’s confirmation this month of Solicitor General Donald Verrilli Jr., the action today leaves the Tax Division as the only major DOJ component without a Senate-confirmed head. President Barack Obama has not nominated anyone for the tax position since his initial choice, Mary Smith, withdrew last year. Serving on an acting basis, Cole would have needed to leave his position at the end of 2011.

DOJ Urges Judge to Reject Honors Program Hiring Suit

Updated 4:08 p.m.

The Justice Department is urging a federal judge in Washington to reject a suit that alleges department officials in 2006 used job candidates' political and ideological affiliation to decide whether to grant interviews to applicants.

The claims from three plaintiffs, each a former applicant for the Justice Department’s highly competitive Honors Program, stem from an internal DOJ report published in 2008 that found members of a screening committee improperly examined political and ideological affiliation in rejecting candidates.

The plaintiffs contend in the suit in Washington federal district court that Esther McDonald, a front-office lawyer under Attorney General Alberto Gonzales, sought out and printed personal information about candidates during Internet searches. The records were later destroyed. The suit alleges the records should have been preserved.

In court papers (PDF) filed Monday night, DOJ lawyers said the Office of the Inspector General and Office of Professional Responsibility report on the politicization of the hiring of career lawyers “is completely silent as to the requirements of the Privacy Act. Whatever misdeeds the report highlights, it says nothing about whether Esther McDonald ever created the specific records that form the basis of this dispute.”

Daniel Metcalfe, lead attorney for the plaintiffs, said in a statement this afternoon: “The Justice Department’s filing blithely chooses to ignore the legal effect of its gross evidence destruction, taking positions so extreme that they themselves practically prove the merits of plaintiffs’ case. Plaintiffs look forward to pointing this out in great detail.”

Justice Department trial attorney Brad Rosenberg of the Civil Division said in the court papers the plaintiffs have failed to show that any members of the screening committee “ever considered internet records of any description relating specifically to them.”

McDonald, according to Rosenberg, “rarely printed information from the internet, and only occasionally make internet-related notations on the working copies of employment applications.”

Rosenberg said there are “possible” reasons why the plaintiffs—James Saul, Matthew Faiella and Daniel Herber—did not receive job interviews “that would have nothing to do with their claims arising under the Privacy Act.” He cited “obvious typographical errors” on one application and grades “in the bottom half” of a law school class on another.

In a deposition last year in the suit, Gonzales said he was disappointed “I didn't do things differently" to stop the politicization of the program for hiring career lawyers. “I feel disappointment in myself," Gonzales said, according to documents filed in the suit. Gonzales also said: “I, the attorney general, am ultimately responsible.”

The plaintiffs are seeking monetary damages, including out-of-pocket job search expenses and lost wages—the salary the attorneys missed out on at the Justice Department.

DOJ lawyers contend that none of the plaintiffs will be able to show that they would likely have received a job offer had they not been rejected from the applicant pool. DOJ said the plaintiffs have not identified damages stemming “from the loss of this mere ‘opportunity’” to interview for a career post.

In his motion for summary judgment (PDF) filed in May, Metcalfe said the suit “seeks accountability for what was the most blatant misconduct by high-level Department of Justice officials in recent memory.”

“[T]his is a case of extraordinarily gross agency wrongdoing—nothing less than the corruption of the premier government attorney hiring program in the nation by the cabinet department regularly charged with enforcing, not violating, our nation’s laws,” said Metcalfe, who teaches at American University Washington College of Law. “From brazen violations of long-respected civil service rules, to flagrant records-maintenance practices, to vividly inculpatory record destruction—all at the highest levels of the Department—this case now cries out for strong accountability.”

Judge John Bates of Washington federal district court is expected to hear the dispute in October.

Supreme Court Sends Judicial Pay Challenge Back to Federal Circuit

The U.S. Supreme Court on Tuesday sent a constitutional challenge involving federal judges’ pay back for a second look by the U.S. Court of Appeals for the Federal Circuit.

The Court’s action, which came in the term’s final “clean-up” order list, solved the mystery of what would happen to the judges’ petition for review, which had been filed in May 2010 and relisted 10 times for consideration in the justices’ conferences.

Eight current and former federal judges in Beer v. U.S. claimed that Congress in 1989 promised cost-of-living adjustments but failed to deliver them in 1995-97, 1999 and 2007. That failure, they argued, was an unconstitutional diminishment of judicial pay.

In January 2010, the Federal Circuit affirmed a ruling against the judges by the U.S. Court of Federal Claims. The Claims Court had held that the judges’ lawsuit was controlled by Williams v. U.S., a 2001 Federal Circuit decision rejecting the same argument.

The justices on Tuesday, with Justice Antonin Scalia dissenting, vacated the Federal Circuit’s January judgment and directed that court to consider a question of preclusion raised by the Office of the Solicitor General.

The government in its opposition to the Beer petition had argued that the Beer claims depend on an interpretation of the Constitution’s compensation clause that the Federal Circuit had rejected in Williams. “Because petitioners were members of the plaintiff class in Williams, they are bound by that decision. Accordingly, principles of issue preclusion bar petitioners from relitigating the Compensation Clause issue and thus provide an independent ground for dismissal of petitioners’ complaint.”

The justices in their order granting the Beer petition and vacating the Federal Circuit judgment, said, “The Court considers it important that there be a decision on the question, rather than that an answer be deemed unnecessary in light of prior precedent on the merits. Further proceedings after decision of the preclusion question are for the Court of Appeals to determine in the first instance.”

Justice Stephen Breyer said he would grant the petition and set the case for argument. Justice Scalia said he too would grant the petition and set it for argument. He dissented from the vacating of the lower court judgment, saying it has been his consistent view that the Court has no power to do that unless the judgment is in error or is cast in doubt by some subsequent factor. Justices Breyer, Scalia and Anthony Kennedy had dissented from the denial of certoriari in Williams in 2002.

Christopher Landau of Kirkland & Ellis represents U.S. District Judge Peter Beer and his colleagues. “We’re pleased the Supreme Court granted the petition and we look forward to presenting our arguments on the preclusion issue to the Court of Appeals and if necessary ultimately to the Supreme Court,” he said.