Litigation Update: Halliburton, NCAA
In Halliburton v. Erica P. John Fund, one of the most widely watched securities cases in years, the U.S. Supreme Court in June reaffirmed the “fraud-on-the-market theory” established in Basic v. Levinson a quarter of a century ago. The theory serves as the foundation for most securities class actions, which Congress, the SEC, and the Supreme Court have all recognized are important to the integrity of securities markets. Under the theory, rather than establish reliance separately for each class member, plaintiffs can presumptively establish reliance for all class members based on the twin premises that material misrepresentations are impounded into the stock price and that investors rely on the integrity of the stock price. Halliburton argued that the efficient market hypothesis, which underpins the fraud-on-the-market theory had been discredited by economists, and that securities class actions did little to deter fraud or compensate investors. Boies, Schiller & Flexner Chairman David Boies argued for the plaintiffs before the Supreme Court in March, maintaining that most economists still believe that material information affects stock prices, and that under the stare decisis principle the court should defer to Congress, which could overrule Basic if it wanted to and which has repeatedly legislated in the securities class action arena without doing so.
Chief Justice John Roberts, writing for six members of the court, held that Halliburton had failed to justify overturning Basic. The Supreme Court did hold that the lower court had erred in refusing to afford defendants an opportunity at class certification to seek to rebut the presumption by establishing that the alleged misrepresentations did not impact the stock price. The other three justices would have overturned Basic.
After the decision, Law360 put Halliburton at the top of its list of the biggest securities cases of 2014, and Litigation Daily named Mr. Boies as its Litigator of the Week. Partners Carl Goldfarb, Sigrid McCawley, Robert Silver, and Stuart Singer worked on the matter, assisted by co-counsel. Our legal team also included counsel Hampton Dellinger, Eli Glasser, David Nelson, and Eric Posner, along with associates Andrew Adler and Aaron Marcus.
In 1995, Ed O’Bannon led UCLA to the NCAA basketball championship. Years later, O’Bannon, who now works as a car salesman in Nevada, noticed his image in a video game and questioned why he had received no compensation. In June, 19 years after O’Bannon’s college championship season, a federal judge in California presided over an antitrust trial that could reform National Collegiate Athletic Association rules that prevent college players from sharing in revenues from broadcasts and licensing such as video games. Boies, Schiller & Flexner partner Bill Isaacson, the only lawyer in the United States who has tried three previous antitrust class actions to verdict in recent memory, was co-lead trial counsel for O’Bannon and the other plaintiffs.
In a three-week trial, Isaacson systematically and effectively undermined the NCAA witnesses, including Neal Pilson, the former president of CBS Sports, and Mark Emmert, the current president of the NCAA. A journalist sending live updates from court via Twitter described Isaacson as a “bull dog,” and another characterized Isaacson’s cross-examination of University of Texas Athletic Director Christine Plonsky as “one of the more entertaining moments” of the trial. ESPN wrote that Isaacson “distinguished himself . . . as a formidable advocate.” By the end of the trial, a Wall Street Journal reporter wrote that Isaacson and his co-counsel had laid bare the “deeply embedded contradictions and occasional bits of outright absurdity” in the NCAA’s case. Judge Claudia Wilken is expected to rule this summer. Isaacson was supported at the trial by associate Martha Goodman.
Boies, Schiller & Flexner continues to take a leading role representing Barclays, with more than fifty individual and class actions involving the London Interbank Offered Rate (Libor) that have generated several significant decisions from both district and appellate courts. Boies, Schiller & Flexner is on Barclays’ list of preferred law firms.
This litigation has been brought against Barclays and other banks arising from their submissions to the bodies that set interbank offered rates in various currencies. Most cases are consolidated into a multidistrict litigation involving the U.S. Dollar Libor before Judge Naomi Reice Buchwald of the Southern District of New York (In re Libor-Based Financial Instruments Antitrust Litigation, No. 11-md-02262). Other significant actions include Laydon v. Mizuho Bank, Ltd., No. 12-cv-3419; a case before Judge George B. Daniels involving the Yen Libor, Sullivan v. Barclays Bank PLC, No. 13-cv-2811; a case before Judge P. Kevin Castel involving the Euro Interbank Offered Rate (Euribor); and a securities fraud action pending before Judge Shira A. Scheindlin, Gusinsky v. Barclays PLC, No. 12-cv-5329, all in the Southern District of New York. Since the cases were filed, judges Buchwald and Daniels have issued rulings dismissing significant claims asserting billions of dollars of damages.
Led by Managing Partner Jonathan Schiller, the attorneys working on Libor-related matters for Barclays include partners David Boyd, Mike Brille, Bill Isaacson, Jonathan Shaw, Jim Denvir, Todd Thomas, Mike Gottlieb, Melissa Felder Zappala, and David Zifkin; counsel Hampton Dellinger; and associates Leigh Nathanson, Amos Friedland, Mike Mitchell, Abby Dennis, Wells Harrell, Karen Paik, and Nishanth Chari.
Boies, Schiller & Flexner successfully defended Goldman, Sachs & Co. against claims of fraud, breach of fiduciary duty, and breach of contract brought by two of its brokerage clients who alleged that they were subject to improper margin calls and who sought damages in excess of $300 million. Jonathan Schiller, David Boyd, and David Zifkin represented Goldman, Sachs & Co. at a FINRA arbitration in January. The panel decided in favor of Goldman Sachs in March.
Boies, Schiller & Flexner successfully represented Silicon Valley consumer healthcare company Theranos in a patent dispute over blood test technology. That technology, which was the brainchild of Theranos founder Elizabeth Holmes, permits laboratories to conduct tests that are quicker, more affordable, and less painful to patients. Theranos alleged that Fuisz Pharma and its principals, Dr. Richard Fuisz and Joseph Fuisz, misappropriated Theranos’s confidential information – including information in Theranos’s unpublished patent applications – and patented the same technology. Specifically, Theranos alleged that a family member of the defendants, who was a partner at Theranos’s former law firm, passed the information to the defendants. After two days of trial in federal court in San Jose, California, and during David Boies’s questioning of Richard Fuisz, the defendants agreed to invalidate all claims of their own patent. As part of the settlement, the defendants also agreed to a broad release and covenant not to sue, which precludes Fuisz Pharma from asserting any legal claims against Theranos for five years. Partners Michael Underhill, William Marsillo, and Michael Jay worked on the case, as did associates Joseph Lasher, Michael McCarthy, and Meredith Dearborn.
A New York State judge held a six-week bench trial that ended on July 2 to value the AriZona Iced Tea company and break a long-standing deadlock between the company’s two 50 percent owners. Boies, Schiller & Flexner’s client, John Ferolito, had been seeking for years to sell his family’s half of the company, but had been prevented from doing so by a 1998 agreement with co-owner Domenick Vultaggio that restricted sales to outsiders absent Mr. Vultaggio’s approval. During a hard-fought trial, Boies, Schiller & Flexner partner Nick Gravante presented evidence that the company was worth in excess of $4 billion as of the October 2010 valuation date – far more than the $200 million valuation placed on the company by Mr. Vultaggio and his counsel. Although the court will determine how much the company must pay Mr. Ferolito to buy out his 50 percent interest, mid-trial Mr. Gravante presented an irrevocable, binding $2 billion offer from Mr. Ferolito to buy out Mr. Vultaggio’s half of the company. Notwithstanding his testimony that AriZona is worth between $200 and $260 million, Mr. Vultaggio rejected the $2 billion offer during cross-examination. Mr. Gravante and partner Helen Maher tried the case, assisted by partners George Carpinello, Karen Dyer, Michael Merley, William Ohlemeyer, Jeremy Vest, and Richard Weill. Attorney consultant Stephanie Reger and counsel Rosanne Baxter and James Grippando also worked on the case throughout the trial, as did associates Brooke Alexander, Paul Fattaruso, Matthew Cushing, Ievgenia Vatrenko, Dan Boyle, Sebastian Swett, Amy Donehower, and Miguel Lopez. Justice Timothy Driscoll of the Commercial Division of the Nassau County Supreme Court has said that he will rule as soon as October.
In April, the Firm won dismissal of a lawsuit challenging two subsidiaries of long-time client Zurich Insurance over changes they had made to an investment fund’s guaranteed minimum growth rate and surrender terms. One change capped the fund’s guaranteed 8 percent growth rate because the divergence between the market performance of the fund’s underlying investments and the guaranteed growth rate threatened to violate federal tax laws relating to insurance products. Another change clarified that, if the policyholder elected to surrender the policies, liquidation and distribution of proceeds would be delayed until the market value of the underlying investments caught up with the guaranteed value. Plaintiff Aviva Life, which invested $180 million in the fund in 2001 through two Company-Owned Life Insurance (COLI) policies issued by AIG’s American General Life, challenged the modifications in Delaware’s Court of Chancery. A team led by partner Alan Vickery brought a motion for judgment on the pleadings, reasoning that the case was not ripe and that, in any event, the contracts permitted the changes. The motion was briefed principally by partner Jennifer Altman and associates Matt Kaden and David Siffert, with tax arguments formulated by tax partner Michael Kosnitzky. Mr. Vickery argued the case for Zurich and American General at a hearing in April, after which Vice Chancellor Sam Glasscock observed that he gets to hear arguments “from the best of the bar around the country, and this was a privilege to hear . . . it is unusual, in my experience, that an oral argument is as helpful to the Court as this one has been.” In dismissing the case, Vice Chancellor Glasscock wrote that the case presented a question of first impression under federal tax law, but that the objections raised by Aviva were not ripe for decision.
In November, the Firm was engaged by the Strauss company, a family-owned Israeli food company largely known in the United States for its Sabra product line. The Strauss company retained a team led by Jonathan Schiller and assisted by Josh Schiller and Benjamin Margulis to provide counsel in an Enterprise Chambers proceeding in Amsterdam. The proceeding was brought against the company by private equity firm TPG relating to a contested IPO arising out of a joint venture in the Strauss international coffee business that the parties entered into in 2008. After prevailing in the Enterprise Chambers proceeding, Strauss also retained the Firm’s corporate group, including George Liu, Thomas Fritsch, Lidia Frenkel, and Daniel Grossman to, in addition to ongoing litigation advice, advise the Strauss Group through the contested IPO discussions, which are ongoing.