The Second Circuit declined to dismiss an interlocutory appeal from a district court’s refusal to compel arbitration under the doctrine of equitable estoppel.  The doctrine requires a party who didn’t sign an arbitration agreement to arbitrate anyway.  The court rejected the argument that the absence of an agreement, in writing, with the party resisting arbitration deprives it of jurisdiction to decide the merits of the refusal to compel.  Ross v. American Express Co., Nos. 06-4598 & 06-4759 (2nd Cir. Feb. 13, 2007).

Without explanation, the opinion "declines to follow" In re Universal Service Fund Telephone Billing Practices Litig., 428 F.3d 940 (10th Cir. 2005), and DSMC Inc. v. Convera Corp., 349 F.3d 679 (D.C. Cir. 2003).  Both dismissed appeals from orders that declined to apply the equitable estoppel theory for compelling arbitration to non-signatories.

Can the arbitragation mess get any messier?

Update Note:  You can now view a copy of the Second Circuit opinion by clicking on the case cite at the end of the first paragraph above.

Barry Barnett

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What would William O. Douglas think of
current SEC Chairman Cox?

Blawgletter took former SEC commissioner (and current Stanford law professor) Joseph A. Grundfest to task last week for misunderestimating the true reasons for a recent fall-off in securities class actions.  The professor’s arguments, Blawgletter believed, aimed at glorifying government enforcement of securities laws while casting asparagus on the private kind.  And the timing of Mr. Grundfest’s opinion piece for the WSJ struck us as, well, a bit odd.

Until today.  The NYT — arch-nemesis of the WSJ — reports that Mr. Grundfest’s former agency, under new Chairman Christopher Cox, has launched a multiple-prong strategy to reduce class actions on behalf of investors who lose their shirts as a result of fraud by corporate insiders.  See "S.E.C. Seeks to Curtail Investor Suits".  One prong would raise pleading requirements to a level all-but-impossible to satisfy.  Another would reduce or eliminate the liability of auditors for helping cook corporate books.

Co-inky-dink?  Blawgletter makes the dots.  You connect them as you wish.

Barry Barnett

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The King of the Road.

Today, the Sixth Circuit upheld the timeliness of copyright ownership and infringement claims relating to songs that singer-songwriter Roger Miller wrote in 1964.  The court also affirmed the district court’s ruling that Sony owns the copyright in pre-1964 works as assignee.  But the Sixth Circuit held that Sony did not "judicially admit" that the plaintiffs own the copyright in the 1964 songs.  Roger Miller Music, Inc. v. Sony/ATV Publishing, LLC, Nos. 05-6824 & 05-6880 (6th Cir. Feb. 13, 2007).

Blawgletter imagines that Sony heaved a corporate sigh of relief when the court threw out the judicial admission, which otherwise would doom its defense.  So, at least for awhile, Sony’s lawyers can stop singing Mr. Miller’s first Grammy-winning song — the remorseful Dang Me (1964), the rights to which the parties will now litigate.

Barry Barnett

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The First Circuit today reversed the dismissal of claims (for breach of contract, professional negligence, and negligent misrepresentation) against a firm that, according to the complaint, appraised the Portland Shellfish Company, Inc., at less than half of its value.  The decision turned on whether the plaintiff, the seller of Portland shares under a "buy-sell" agreement, can possibly show that the lowball appraisal caused him to sell his shares for too little.

The buy-sell allowed the plaintiff either to accept the offer to buy his shares at or above the appraisal price or to buy the offeror’s shares at a price higher than the offer price.  The district court held that the plaintiff’s freedom to choose between selling and buying negated any causal connection between the negligent appraisal and the plaintiff’s loss from selling out cheap.  The First Circuit disagreed, concluding that the bad valuation could have skewed the buy-sell process by setting an artificially low floor.  Wetmore v. McDonald, Page, Schatz, Fletcher & Co., LLC, No. 06-2103 (1st Cir. Feb. 12, 2007).

The skewing concept, Blawgletter notes, has a firm foundation.  In many price-fixing cases, for example, competitors agree to set their "list" or "rack" prices at certain levels or in certain ways.  The high floor pushes prices for all buyers up.  In this case, conversely, the seller alleges that a low floor pulled the price for his shares down.  The court (per U.S. District Judge Milton Shadur, who knows a thing or two about price-fixing cases, sitting by designation) got it right.

Barry Barnett

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Tax shelter — or trap?

The Ninth Circuit today reverses the dismissal of a complaint for common law fraud and conspiracy against an accounting firm, a law firm, and others that the plaintiff alleges deceived him into buying a sham tax shelter.  Swartz v. KPMG, No.   (9th Cir. Feb. 12, 2007).  Theodore Swartz paid $1 million for services relating to his desire to minimize (i.e., avoid) capital gains taxes on the $18 million he received when he sold his business.

Blawgletter confesses that the shelter boasts an alluring moniker — "Bond-Linked Issue Premium Structure" or BLIPS, which helps explain why Mr. Swartz thought it would work.

But seriously.  The court did affirm dismissal of other claims because, it concluded, Mr. Swartz didn’t adequately allege reasonable reliance on false representations.

Blawgletter commends the opinion to the reading of anyone who, like us, prefers not to pay taxes but would also rather not get a sham (or even sham-ish) tax shelter.

Barry Barnett

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Today, the Sixth Circuit affirms a district court’s refusal to vacate a judgment after the appellant lost at trial and in an appeal.  The case involves claims under the Comprehensive Environmental Response, Compensation and Liability Act.  The court of appeals held that Rule 60(b)(6) allows vacatur of judgments as a result of intervening changes in controlling law but only in extremely rare circumstances.  GenCorp v. Olin Corp., No. 05-4439  (6th Cir. Feb. 12, 2007).

Barry Barnett

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Harvard’s 28th President.

Blawgletter never tires of tweaking the WSJ — not least for its, um, distinctive editorial point of view.  Fresh cause for making the fun comes today, as Harvard (in the Journal’s word) "taps" the first female president in its nearly quadricentennial history.

What prompts Blawgletter to chuckle?  The Journal’s failure to mention ary a one of the women who now head fully half of the Ancient Eight in its authoritative 2006 listing of "The 50 Women to Watch".  See the WSJ’s choices here.

One might forgive the Journal’s oversight as a result of an habitual focus on matters commercial, except that the 50 also include women leaders in government and philanthropy.  Plus the "The" invites a ribbing.

Oh, yes.  Blawgletter also wishes to congratulate Drew Gilpin Faust, Harvard’s new prexy — and will do so in the words of a song that we would on any other occasion die a hideous and painful death before singing:

Illegitimum non Carborundum; Domine salvum fac.
Illegitimum non Carborundum; Domine salvum fac.
Gaudeamus igitur!
Veritas non sequitur?
Illegitimum non Carborundum–Ipso facto!

Barry Barnett

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Will the mouse bite the hand it fed?

The LA Times reports today that Steve Jobs may have benefited from backdating of stock options at animation giant Pixar, of which he owned half before Walt Disney bought the company for $7.4 billion in 2006.  The backdating may have inflated the valuation of Pixar, causing Disney to overpay.  Disney has started its own investigation into possible Pixar backdating.

Blawgletter wonders whether Jobs broke the rule against making too much money — about 3.7 billion simoleons in this case.

Barry Barnett

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