Have you heard people — okay, lawyers — talk about "the Southern District"? As if you MUST know what they mean? Surely not the Southern District of West Virginia — one of the coolest names in the entire U.S. court system.

No. Not that. This:

S.

D.

N.

Y.

Where Learned Hand sat before Calvin Coolidge put him on the Second Circuit. That one.

A couple of days ago, a panel of the court that Judge Hand adorned in all his 37 years there Reined In one of those whose judgments it checks for error. And the panel, per curiam-wise, said His Honor had Gone Too Far.

The case involved a fight between the Securities and Exchange Commission and Citigroup Global Markets over the latter's sales of — yikes — "collateralized debt obligations". Citigroup's hawking of CDOs misled people who bought them, the SEC urged, because Citigroup had to know they'd hugely drop in value once the market woke up to the fact that the collateral — often real estate mortgages — had Far Less Value than the buyers had guessed.

The SEC and Citigroup struck a deal that would return to the CDOs buyers $285 million — an amount that Blawgletter thinks reflects a Small Fraction of what the Victims really Lost. But the court, in the guise of U.S. District Judge Jed Rakoff, said Try Again or Go to Trial.

Citigroup filed an appeal and asked for a stay of the ruling. The Second Circuit panel granted the request. It said:

The district court’s reasoning was that the settlement must be deemed to be either insufficiently onerous or excessively onerous unless the liability of Citigroup had been either proved or disproved at trial or one side or the other had conceded the issue.  This is tantamount to ruling that in such circumstances, a court will not approve a settlement that represents a compromise.  It is commonplace for settlements to include no binding admission of liability.  A settlement is by definition a compromise.  We know of no precedent that supports the proposition that a settlement will not be found to be fair, adequate, reasonable, or in the public interest unless liability has been conceded or proved and is embodied in the judgment. We doubt whether it lies within a court’s proper discretion to reject a settlement on the basis that liability has not been conclusively determined.

Securities and Exchange Comm'n v. Citigroup Global Markets, Inc., No. 11-5227-cv, slip op. 11-12 (2d Cir. Mar. 15, 2012).

Blawgletter adores trials. Let us tell you about our last one:

The other side thought the case related to theft of their 3D seismic data. They felt so strongly about it that at trial they asked for more than $70 million — for what they deemed misuse of their trade secrets.

But the court saw things differently. On March 5, 2012, the 36th District Court of Beauregard Parish, Louisiana, issued its Reasons for Judgment. And, in those Reasons for Judgment, by The Honorable H. Ward Fontenot, Susman Godfrey's client won a near-total victory.

Olympia Minerals held mineral leases and servitudes that covered 445 square miles in western Louisiana. In 2000, Olympia, which then belonged to El Paso Production Company, entered into a contract with Aspect Resources and a predecessor of Kerr-McGee Oil & Gas for a project over 135 square miles in Beauregard and Calcasieu Parishes. Aspect and Kerr-McGee agreed to conduct a 3D seismic survey, to sublease at least 15 percent of the acreage, and to provide Olympia with a copy of the seismic data, including in the form of raw data or field tapes. But Aspect and Kerr-McGee shot only about half of the 135 square miles, did not sublease any acreage, and provided only processed seismic data to Olympia.

Aspect and Kerr-McGee nonetheless claimed that Olympia had misused the seismic data by letting other parties, which had subleased some of the Louisiana lands from Olympia, "work" the data in a secure data room. They also alleged that one of the sublessees removed the data from the data room and put it on the company's computer system. They asked for disgorgement of all profits Olympia and the sublessees had made on productive wells plus a five percent royalty on future discoveries and other relief.

In the Reasons for Judgment, the trial court found the evidence "strongly suggests that it was never the intention of the defendants to honor the terms of the" contract with Olympia and that Aspect breached the contract intentionally and therefore in "bad faith". The court cited testimony of "Alex Cranberg, the chairman and founder of Aspect", on the question of why Aspect chose not to shoot more than half of the 3D survey, in support of the court's finding that Aspect made "conscious and calculated business decisions" to commit "major breaches" of the contract with Olympia. The court also found that "the 'shell game' played by Aspect . . . when Olympia sought the [field] tapes is inexcusable." The court therefore struck the contractual limitation on consequential damages, awarded damages (including for loss of royalties) that Olympia estimates at $40 million or more, dissolved the contract between Olympia and Aspect, and directed Aspect to provide Olympia with the field tapes for the 3D data. The court also dismissed all of Aspect's claims against Olympia and its sublessees for misappropriation of trade secrets, breach of contract, and other theories with prejudice.

"I knew the only way ultimately to prevail was to be genuinely prepared to try the case represented by a firm with a track record of success", said Olympia's President, Michael Lewis. "That said", he added, "the Susman Godfrey attorneys presented a rare combination of strong legal intellect, common sense about right and wrong, and credibility in the courtroom".

"Judge Fontenot's scholarly and compelling analysis demonstrates the importance of keeping promises, in the oil patch and in everyday life", said Barry Barnett, Olympia's lead trial counsel and a partner in Susman Godfrey L.L.P. "It also shows that mineral owners in Louisiana can count on the law to protect the rights they bargain for."

The Olympia trial team consisted of Mr. Barnett and partner Daniel Charest, both of Dallas, and Brian Gillett, an associate in Susman Godfrey's Houston office. Pat Long, a Patton Boggs partner in Dallas, and Carver Darden partner John Dunlap and associate Harry Barton, both of New Orleans, represented different groups of the working interest owners. Barry Wertz and Jonathan Baughman of McGinnis Lochridge & Kilgore in Houston represented Aspect.

Olympia and the working interest owners settled with Kerr-McGee following summary judgment rulings favoring the plaintiffs.

 

 

The NYT reports that a federal jury in Houston today convicted high-yield CD king Allen Stanford on all but one of the 14 fraud counts against him.

Stanford grew up in Mexia, Texas, and got a finance degree from Baylor in Waco. In the 1980s, he moved to Montserrat and later Antigua.

His Stanford Financial Group sold billions of certificates of deposit, which boasted yields of 7.5 percent or more.

Can you say Ponzi scheme?

AT&T claimed that a state-wide franchise it got from Kentucky in 1886 — to build and use "telephone lines, exchanges and systems" — gave it the right not only to furnish Bluegrass Staters phone service but also to provide them cable TV. And the district court agreed.

The Sixth Circuit did not. The panel ruled that the Court Below made two mistakes:

First, the court failed to apply the appropriate standard of review for a motion to dismiss, improperly assigning the burden of proof to the non-moving party, Mediacom.  Second, the court relied on self-serving facts written by AT&T in a stipulated agreement—facts that conflicted with the well-pleaded facts in the complaint—to make findings about the nature of the U-verse service, and its applicability to AT&T’s telephone franchise. 

Mediacom Southeast LLC v. BellSouth Telecommunications, Inc. d/b/a AT&T Kentucky, No. 10-6117, slip op. at 4-5 (6th Cir. Mar. 2, 2012).

The case started when a city, Hopkinsville, sued AT&T for selling U-Verse cable service without a local franchise. The city and AT&T settled, but before the case could go away the existing cable firm, Mediacom, jumped into the case and started making the same claims that the now-happy city wanted to drop. AT&T moved to dismiss, and the district court obliged.

The Sixth Circuit judges felt that their colleague went too fast by reaching the question of whether sending "IP video signals is within the scope of AT&T Kentucky's existing franchise" on a motion to dismiss. Mediacom alleged in its complaint that the franchise allowed "two-way" phone service, not "one-way" cable service. The Lower Court also erred by giving credit to an AT&T document — the settlement agreement with Hopkinsville — on the one-way/two-way question over the contrary allegations in the Mediacom pleading.

The fact that AT&T had called its U-Verse service "one-way" in another case didn't help. See id. at 8 (quoting Office of Consumer Counsel v. Southern New England Tel. Co. d/b/a AT&T Connecticut, 515 F. Supp. 2d 269, 276-77 (D. Conn. 2007)).

Blawgletter doesn't see the outcome as a plus for consumers. AT&T might have a hard time showing that U-Verse looks more like two-way phone service than one-way cable TV. In any event, if AT&T loses on the issue, that could make the cable incumbents' job of fending off competition easier.

We can't believe we hope AT&T wins.

You can get a U.S. patent if you invent "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof" if you meet "the conditions and requirements" of U.S. Code title 35. 35 U.S.C. § 101.

The first of the four things the statute lists — a "process" — sounds a little abstract, doesn't it? And we know that "laws of nature, physical phenomena, and abstract ideas" don't qualify for patenting, right? Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980) (emphasis ours). So how do you tell if a patent that describes a "process" avoids the bar on patenting "abstract ideas"?

Easy. Does the patent talk about doing something? Making something? Using something? Something concrete, something real?

Okay, maybe not so easy.

A patent that teaches you how to get a tax break by selling a piece of real estate and then buying a second one doesn't count as a patentable "process", the Federal Circuit held in Frost Properties, Inc. v. Am. Master Lease LLC, No. 09-1242 (Fed. Cir. Feb. 27, 2012). The panel ruled that an "abstract concept cannot be transformed into patentable subject matter merely because of connections to the physical world". Id., slip op. 10 (citing Bilski v. Kappos, 130 S. Ct. 3218 (2010)) (emphasis ours). The patent has to disclose a "process" that can happen in a physical sense beyond what you can see with your mind's eye.

Listing the steps you need to take to use real estate deals to defer taxes describes an unpatentable abstract idea. So there.

The rule of "capture" has meant for a long time in Texas that the oil and gas lying beneath your land belong to you. Now it also means you own the subterranean water. The Edwards Aquifer Authority v. Day, No. 08-0964 (Tex. Feb. 24, 2012).

The Court ruled, 9-0, that limiting landowners' right to use ground-water amounted to a "taking", for which the state owed compensation.

Justice Nathan Hecht wrote the opinion for the unanimous Court.

Blawgletter's firm handles lots of patent infringement cases on a contingent-fee or hybrid basis. And by hybrid we mean either a fraction of hourly plus a contingent percentage, a flat-fee plus a kicker, or an hourly or flat fee with some case-specific incentive to get exceptional results.

Now we see a scholar who has looked at the market for lawyers who take on clients under a contingent-fee deal. Although it remains in draft form, we commend it to your consideration. See David L. Schwartz, The Rise of Contingent Fee Representation in Patent Litigation.

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The Fifth Circuit for a long time has seemed to insist on paying class counsel on a pure lodestar basis — hours x hourly rates. It looked to have stuck itself to the old-style lodestar method under Johnson v. Ga. Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974).

That contrasts with other circuits' belief in letting district courts have the option of basing fee awards in common fund cases on a percentage of the common fund instead of a strict lodestar method.

But the Fifth Circuit's seeming view largely went away this week.

In Union Asset Mgmt. Holding A.G. v. Dell Inc., No. 08-51163 (5th Cir. Feb. 7, 2012), the court upheld a $40 million class action settlement of claims that Dell inflated its share price by making false statements about revenues and other things. The panel ruled that the district court didn't abuse its discretion when it granted class counsel a $7.2 million fee, which came to 18 percent of the common fund. It said:

The objectors argue that the lodestar method is the only way to calculate attorneys’ fees in this Circuit. They understandably point to the following sentence from a 2008 case: “This circuit requires district courts to use the ‘lodestar method’ to ‘assess attorneys’ fees in class action suits.’” But that sentence overstates the case it quotes, which said that the Circuit “uses” the lodestar method rather than “requires” it, did not involve a traditional common fund, and implied that the percentage method might be proper in other circumstances. Moreover, the 2008 case, which was not a securities case, only addressed how to allocate a lump-sum attorneys’ fee award among the plaintiffs’ multiple attorneys rather than how to allocate a common fund between class counsel and the class itself, as here. The fact is that the Fifth Circuit has never reversed a district court's decision to use the percentage method, and none of our cases preclude its use.

Given the Fifth Circuit's stance on choice of method, the district court did not abuse its discretion by using the percentage method with a meticulous Johnson analysis. To be clear, we endorse the district courts' continued use of the percentage method cross checked with the Johnson factors. We join the majority of circuits in allowing our district courts the flexibility to choose between the percentage and lodestar methods in common fund cases, with their analyses under either approach informed by the Johnson considerations.

Id. at 13-14 (omitting footnotes).

Some may say the court limits the percentage method to cases under the Private Securities Litigation Reform Act, but the language doesn't support that view.

The Golden State's Proposition 8 today failed the fourteenth amendment's "equal protection" test because, a 2-1 panel of the Ninth Circuit held:

[T]he People of California may not, consistent with the Federal Constitution, add to their state constitution a provision that has no more practical effect than to strip gays and lesbians of their right to use the official designation that the State and society give to committed relationships, thereby adversely affecting the status and dignity of the members of a disfavored class.

Perry v. Brown, No. 10-16696, slip op. at 80 (9th Cir. Feb. 7, 2012).

Circuit Judge Stephen Reinhardt wrote the majority opinion, which Circuit Judge Michael Daly Hawkins joined.

Circuit Judge N. Randy Smith dissented on the question of whether taking away the right to marry from same-sex couples furthers a proper purpose of the state. Judge Smith focused on "a responsible procreation theory" and "an optimal parenting theory".

The ruling affirmed the district court's judgment striking down Proposition 8 as unconstitutional. The lower court also held that the referendum violated due process under the fourteenth amendment.