Folk hero Doroteo Arango Arambula a/k/a Francisco "Pancho" Villa (1878-1923).

On July 23, 1923, as life seeped from the holes that an assassin’s bullets made, Villa said:

It can’t end like this.  Tell them I said something.

Barry Barnett

Quote our feed.

The Ninth Circuit today held a ban on class arbitrations in a wireless telephone service agreement unconscionable under California law.  It also concluded that the federal Arbitration Act doesn’t preempt state unconscionability law.  And it struck the entire arbitration clause in its non-severable pristineness.  Shroyer v. New Cingular Wireless Services, Inc., No. 06-55964 (9th Cir. Aug. 17, 2007).

Blawgletter suspects that the district court did the defendants no favors by its wholesale adoption of their seven-page order.

Barry Barnett

Adopt our feed!

Blawgletter told y’all yesterday that the U.S. government filed an amicus brief favoring the Wall Street defendants in a big-time securities case pending in the Supreme Court — Stoneridge Inv. Partners LLC v. Scientific-Atlanta, Inc., No. 06-43 (U.S.).  Now we’ve had a look at the brief itself and find that it doesn’t go whole-hog against investors.  Half hog.

The Solicitor General parted ways with the defendants on whether the plaintiffs adequately pleaded "deceptive" conduct under the Securities Exchange Act of 1934:

Properly understood, a person engages in "deceptive" conduct for purposes of Section 10(b) when the conduct by its nature is objectively likely to mislead another person, e.g., when it has the effect of conveying a false appearance of material fact to an observer (assuming, of course, that the defendant possessed the requisite mental state in engaging in the conduct).  Respondents’ alleged conduct constituted a "deceptive device or contrivance" because it not only was likely to, but allegedly did, mislead Charter’s outside accountant, Arthur Andersen, about the nature of the transactions into which respondents had entered.

Brief for the United States at 8.  But the SolGen agreed with defendants that the complaint didn’t satisfy the "reliance" element:

Petitioner does not allege that it was even aware of the transactions that respondents executed with Charter; at most, petitioner relied on Charter’s misstatements in purchasing Charter stock.  Petitioner does not dispute that Charter independently decided to make the misrepresentations in its financial statements, and does not contend that respondents drafted or otherwise created those misstatements.  Accordingly, the causal connection between respondents’ conduct and petitioner’s stock transactions is simply too attenuated to satisfy the reliance requirement.

Id. at 9.  So plaintiffs lose anyway.

But does the SolGen’s split-the-baby approach matter?  It may — in another case pending in the certiorari queue — Regents of the Univ. of Calif. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372 (5th Cir. 2007).  See Blawgletter post here.

In Regents, the Fifth Circuit reversed a class certification order because, it concluded, Enron stockholders couldn’t invoke a "presumption of reliance" against Enron’s bankers.  Without the presumption, common issues didn’t predominate, rendering class treatment of the stockholders’ claims under Rule 23(b)(3) improper. 

But the court’s analysis rested on its conclusion that "[t]he district court’s definition of ‘deceptive acts’ . . . sweeps too broadly".  And the plaintiffs, like those in Stoneridge, did allege that the banks committed "deceptive acts" by fooling Enron’s auditing firm (also Arthur Andersen) about the nature of their transactions with Enron.  The Fifth Circuit thus rejected the SolGen’s test for "deceptive" conduct.

We don’t know of course whether the Supreme Court will adopt the SolGen’s position.  But we do hazard a guess.  If the Court does agree with him about what counts as "deceptive" conduct, the Fifth Circuit will get Regents back.  And it will have a harder time decertifying the second time around.

Beats a poke in the eye with a sharp stick.

Barry Barnett

Happy Friday!

General Douglas MacArthur (1880-1964).  Note the pipe.

We are not retreating.  We are advancing in another direction.

Barry Barnett

Charge!

An Alpine teleport.  Notice the real estate?

Yesterday, the Fifth Circuit overruled a defense summary judgment on a fraud claim.  The court held that, under Texas law, the statute of frauds doesn’t bar a claim for fraud if the plaintiff seeks only out-of-pocket (reliance) damages.  But the court affirmed summary judgment on the breach of contract and breach of fiduciary duty claims.  GWTP Investments, L.P. v. SES Americom, Inc., No. 06-10747 (5th Cir. Aug. 16, 2007).

GWTP sued SES Americom for reneging on a deal to split the eight terrestrial "teleports" that SES bought in a bankruptcy auction.  Their Memorandum of Understanding specified that it "under no circumstances would . . . be legally binding on or enforceable against either party."  The lack of an agreement in writing doomed the breach of contract claim under the real estate statute of frauds.  The court also found no evidence of an "agency" relationship that would support the breach of fiduciary duty claim. 

But the fraud claim survived because the statute of frauds applies only if the plaintiff tries to recover benefit-of-the-bargain damages.  GWTP sought nothing but "the out-of-pocket damages [it] incurred in preparing to operate the teleports."  Slip op. at 10.  The court therefore held that the claim didn’t run afoul of the statute of frauds.

Barry Barnett

Our feed yodels for you.

Per the WSJ, U.S. District Judge Paul Friedman today spurned a government attempt to block Whole Foods from eating Wild Oats.  The Federal Trade Commission asked Judge Friedman to enjoin the merger.  He took 93 pages to say no.

Blawgletter would link to the opinion, but the court filed it under seal to protect corporate secrets.

We nonetheless suspect that His Honor believed, as we do, that antitrust regulators ought to focus on more pressing matters than grocery store sales of tofu, organic blueberries, and Sonoma chicken salad.  International price-fixing cartels, perhaps?

Barry Barnett

Our feed adores competition.

Shareholders of Sonus Networks sued in Massachusetts state court to recover damages to the company.  The state court dismissed the case "without prejudice" for failure to plead a precondition to suit — "futility" of demanding that Sonus bring the action on its own behalf.  The shareholder refiled in federal court.  The district court dismissed because, it concluded, the state court dismissal precluded the shareholders from satisfying the demand futility precondition.  The First Circuit, applying Massachusetts preclusion law, affirmed.  In re Sonus Networks, Inc., Shareholder Derivative Litig., No. 06-1937 (1st Cir. Aug. 16, 2007).

Blawgletter found the opinion unaccountably fascinating.  In it, Circuit Judge Gibson discussed what kinds of orders exert issue-preclusive effect in later litigation.  He concluded that they needn’t dispose of the "merits" to qualify.  He also pointed out that an order may lose its preclusive power if the facts underlying it change.  Because making a demand hadn’t grown more Sisyphian after the state court dismissal, the order precluded relitigation of the demand futility issue.  Heady stuff, that.

Barry Barnett

Our feed never quits.

A federal jury in Miami today found Jose Padilla and two co-defendants guilty on all counts.  Washington Post story here.

The government charged the three of aiding al-Qaida and other Islamic extremists overseas.

In May 2002, then Attorney General John Ashcroft accused Padilla of planning to detonate a "dirty bomb" in the U.S.  President Bush designated him an illegal enemy combatant but later withdrew the designation and transferred Padilla from a military brig to a civilian jail.

Barry Barnett

Our feed votes for you.