You'd think that a corporation would have to have some gall if it sued its officers and directors for prolonging its life.

Even if they defrauded lenders out of the money that kept the firm chugging far past the point of genuine insolvency.

Does the situation change if the company ends up in chapter 11 and the bankruptcy court appoints a litigation trustee to pursue the entity's claims against the insiders?

No, the Second Circuit held today.  The trustee lacks standing because New York law imputes all the bad acts to him because he stands in the shoes of the company, the court held.  Kirschner v. KPMG LLP, No. 09-2020-cv (2d Cir. Nov. 18, 2010).

The issue came down to whether the trustee could invoke the "adverse interest" exception to New York's imputation rule, which originated in Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d CIr. 1991).  Under the exception, a bad-acting insider must have totally abandoned the corporation's interests and acted solely for his own or another's purposes.

With the help of answers to questions it certified to the New York Court of Appeals, the Second Circuit panel concluded that the trustee couldn't show enough of an adverse interest.  That the insiders intended to benefit themselves didn't suffice.  Nor could the trustee deploy the exception unless he could prove that the insiders' fraud hurt the company.  Their wrongdoing in fact helped the company by enabling it to borrow $1.4 billion.  And "'[i]t is a basic principle of corporate finance that extending credit to a distressed entity in itself does the entity no harm.'"  Kirschner, slip op. at 9 (quoting district court opinion).

Working with smart, funny, and creative people brings lots of rewards. 

This month, one of the smartest, funniest, and most creative people Blawgletter knows (and once had the pleasure of working with) wrote a thought piece on legal blogging — what she calls blawgging.  She titled it "If a Blawgger Blawgs in the Forest and No One Hears . . ."  It appears in the Fall 2010 issue of the Texas State Bar Section of Litigation's News for the Bar at pages 7-9.  And it set us to thinking.

The author, Gretchen Sween, clerked for U.S. District Judge Sim Lake and did stints at our firm and Dechert before this year joining the full-time faculty at the University of Texas School of Law as a Lecturer in the Legal Writing Program.  She knows how to write, as you will see.

Ms. Sween starts by puzzling over the why of blawgging, as in:  "Why have so many lawyers, while tending to busy practices, elected to shoulder the burden of a regular, extracurricular, pro bono writing obligation?"  She pooh-poohs the notion that blawgging pays for itself, citing the lack of "evidence that specific new matters were brought in as a result of someone's blawg." 

Then she surveys lawyer friends about their blawg-reading habits.  Ms. Sween finds that they mainly look at blawgs "whose value is essentially entertainment" or at ones that "offer concrete practical guidance relevant to the lawyer's practice — updates on doctrinal areas of the law with links to original source material (such as judicial opinions) and sites that track trends in growth areas such as mass torts, consumer class actions, and patent infringement litigation." 

"In other words," she says, "lawyers read blawgs that would be completely unappealling to non-lawyer mortals."

Ms. Sween then raises the question:

If that is correct — that lawyers do not spend much time reading blawgs that aren't really practical — can the countless (potentially billable) hours that various lawyers and law firms devote to the thousands of blawgs that are now out there be justified?  That is, if blawgging really does not work well as a marketing tool per se, is it worth the challenges associated with simultaneously trying to serve colleagues and once-and-future clients through witty, helpful, accurate, current commentary related to some niche legal market?

Her tentative answer?  "Blawggers seem to believe — and rightfully so — that the act of blawgging can actually make the blawgger a better lawyer."  It does so, she suggests, because the act of writing about a subject "deepens understanding and increases the probability that one will retain the information" and because it "requires great discipline."  Those benefits may result in "economic" gain as well as "greater professional satisfaction", she concludes.

If you've read this far, you may wonder what we think about Ms. Sween's points.  Because we like you so much, we will now tell you.

Almost no one tracks the economic plus side of blawgging.  We'd guess the track-lack happens either because the aspiring tracker can't figure out how to do it in a reliable way or because he or she doesn't really want to know the answer.  

Sometimes you can tie a contact directly to a blawg post or to the blawg more generally — as when someone emails you about a post and invites a response.  But what value does such a contact produce?  A chance to look at a case counts for something, surely.  But unless the look results in retention and the retention generates a fee, you can't assign to the post, or the blawg, a dollar value.

What about indirect results?  What if a subscriber knows you already and, at the moment he or she needs the kind of legal help you provide, reads an on-point post you've just written — and calls you?  Or a potential client looking for a lawyer reads your web profile, clicks on the link to your blawg, confirms a positive image of you — and asks for a meeting?  Those should count, of course.  But imagine the challenges of putting an economic value on the part the blawg played.

The dollars and cents analysis of the cost side, on the other hand, goes much easier.  Multiply the number of your posts by the average time you spent writing them and multiply the result by your hourly rate, and — presto — you have a good idea of what you've invested. 

No wonder no one can say whether a blawg pays for itself.

So what of Ms. Sween's professional development idea?  We we agree with her.  In our area of the law, complex business cases, people you most need to persuade – judges, jurors, clients – desire you to digest and simplify Byzantine facts, reconcile welters of conflicting legal precedents, cut a path to victory, and tell a compelling story all the while.  Practicing to write — and therefore speak — in compelling bursts helps you get better at that difficult assignment.

A final word.  Blawgging at its best and most useful engages your readers.  It pays them the compliment of asking them to think.  The smarter, funnier, and more creative your audience, the greater your rewards.  Especially if then you get to work with them.

Seven hopefuls for pre-trial transfer will hit the argument calendar for the U.S. Judicial Panel on Multidistrict Litigation this Thursday at the Duke University School of Law in Durham, North Carolina. 

The Panel plans to hear lawyers explain why their respective groups of cases should — or shouldn't – go to a single federal judge so that she or he can get them ready for trial and then send them back from whence they came for the actual trials.

The docket lists these matters for live hearing November 18:

MDL No. 2195, In re Credit Card Payment Protection Plan Mktg. and Sales Practices Litig.

MDL No. 2196, In re Polyurethane Foam Antitrust Litig.

MDL No. 2197, In re Dupuy Orthopedics, Inc., ASR Hip Implant Products Liability Litig.

MDL No. 2198, In re Toyota Motor Corp. Priud HID Headlamp Products Liability Litig.

MDL No. 2199, In re POM Wonderful, LLC, Mktg. and Sales Practices Litig.

MDL No. 2200, Armodafinil Patent Litig.

MDL No. 2201, In re Transocean Ltd. Securities Litig.

California law favors class actions.  So much so that Golden State courts have struck down class-action bans that show up in consumer contracts whether they apply to lawsuits, Discover Bank v. Superior Court of Los Angeles, 113 P.2d 1100 (Cal. 2005), or arbitration cases, America Online v. Superior Court, 108 Cal. Rptr. 2d 699 (Cal. App. 2001).  And federal courts applying California law in the Ninth Circuit have followed suit.

But it may not last.  The biggest threat to California's stance took center stage at the the U.S. Supreme Court on November 9.  The Court heard argument that morning in AT&T Mobility, LLC v. Concepcion, No. 09-893 (U.S.), a case from the Ninth Circuit, where AT&T lost.  The company hopes to beat the court of appeals ruling by claiming that California's distaste for bans on class actions tilts the playing field against arbitration.  That, AT&T asserts, defeats section 2 of the federal Arbitration Act, which section states that courts must enforce arbitration agreements "save upon such grounds as exist at law or in equity for the revocation of any contract".  Section 2, in the AT&T view, preempts the California rule.

The UCL Practitioner's Kimberly Kralowec posted links to news reports and scholarly-esque reactions to the argument in Concepcion the day after.  Most opiners — make that all opiners — opined that the hour went better for the class action favorers than they'd expected and that the Concepcions stand a decent chance of winning.

Blawgletters sees more cause for doubt.  

The transcript of the argument suggests to us four justices in favor of upholding California's approach and three against.  Justices Breyer, Ginsburg, Kagan, and Sotomayor all asked questions that imply a simple view of the main issue:  California's rule that both lawsuits and arbitrations must make class actions an option proves the absence of bias against arbitration.  Questions by Chief Justice Roberts and Justices Alito and Scalia, on the other hand, suggest that they believe California only pretends at using neutral rules, which in fact stack the deck against arbitration.

Justice Thomas, who said nothing, as he always does, may go for the Concepcion's federalism tack, which asserts that the Court should avoid holding that federal law preempts state law.  Our friend Paul Bland watched the session live and said that in his silent way Justice Thomas seemed downright lively. Bland added that, despite his conservative bent, Justice Thomas just might supply the fifth vote in favor of keeping the California rule.

That leaves Justice Kennedy.  What does he think?  He said these things:

[During the argument of AT&T's lawyer]

But it seems to me that all State — most State statutes pertaining to contracts pertain to a class that is not entirely universal.  Suppose that a State had a statute referring to banks, contracts with banks.  That doesn't apply to all contracts.  It doesn't apply to railroads.  But we know that it applies to a class that generally includes both arbitration and non-arbitration.  And that's this case, because there can be a class action rule with respect to litigation and class action rules with respect to arbitration.  So you have to have some rule that recognizes that you don't have to have the entire universe of contracts.  And I'm not quite sure what your test is.  You have a few of them in your brief.

[During the argument of the Concepcions' lawyer]

Suppose that this doesn't have what's called a blowout clause.  Suppose that that kind of clause was not in there.  And the consumer opts out of the arbitration [and chooses to try his or her claim on a class basis].  Arbitration [on a class basis] doesn't — doesn't go well.  Anyway, can the consumer then insist on the arbitration that the consumer bargained for, the individual arbitration that the consumer bargained for?

So then the bank has to have — liability exposure for two different proceedings?

*   *   *   *

But you are saying then California can say it's unconscionable to allow the parties to agree that there will be just the single arbitration proceedings?  I don't see how the third parties are necessarily protected.  If you say that the consumer still has the election, that certainly isn't what they bargained for.  Maybe I'm — maybe that's just a quarrel with the content of the unconscionability standard.

Rather than the FAA [federal Arbitration Act], but I think it does bear on at least section 4 of the FAA.  [Section 4 provides that a party to an arbitration agreement has the right to ask a court to order arbitration "in the manner provided for" in the parties' contract.]

*   *   *   *

If you stick with the theory that the test is whether or not the law in question is inconsistent with the idea of arbitration — whose idea of arbitration?  What about, suppose it's the bank's idea of arbitration, that we — we want this settlement, say; we do not want that; that's the bank's idea of arbitration that the parties agreed on.

If you think Justice Kennedy's remarks leave you guessing at how he views the case, we join you.  But he did question the Concepcions' lawyer more, and the questions he posed did seem hostile to the simple view that the neutrality of the California rule — no class-action bans in court or in arbitration — resolves the case.

The outcome may pivot, as outcomes so often do in this Court, on Justice Kennedy's thoughts.  We can't read them and will likely have to wait for at least a few months, maybe even until the end of the Court's term in June 2011.  

And yet this time Justice Thomas may become the spoiler.  We look forward to the Court's ruling.

Watch lawyers filing into a courthouse, and you won't see a great many grins.  An excess of cheer seldom attends a deposition or negotiation.  And lawyers don't often tell jokes well.

What accounts for that?  Stress?  A grim take on the human condition?  Poor social skills?

Maybe lawyers seem so serious because they, more than others, want people to see them capable first and friendly second.

An article Blawgletter read a week ago and thought about since supports that view.  The piece, "The Psyche on Automatic", reviews research into "how people perceive and categorize others."  Social psychologist Amy Cuddy points to two "critical variables" — "warmth" and "competence" — that others sense about us right away.

Others feel your warmth first.  That allows them to predict whether you mean them good or ill.  Competence comes next.  It alerts people to your ability to do what you intend.  And it counts less than warmth.

People tend to view warmth and competence as warring, Cuddy says.  "If there's a surplus of one trait, they infer a deficit of the other."  Nice guys finish last sort of thing.  (What lawyer wants that?)  And people in general prize competence in themselves more than they value warmth.  We'd guess that goes double for professionals, who depend on a high degree of skill to earn a living.

The article points out that adding warmth to your persona can yield big dividends.  "The most advantaged category . . . is warm/competent; that perception evokes admiration and two kinds of behavior:  active facilitation (helping) and passive facilitating (cooperation)."  Which sounds good.

The article also offers tips on improving how others perceive you.  (Lean forward!  Stand up straight!  Uncross your arms!)  

We enjoyed it and bet you will, too.

 

Doing things out of proper sequence can require a do-over.  But in law, as elsewhere, the do-over may come too late. 

Just ask Abraxis, a drug maker that today lost a lawsuit because the company it bought patents from didn't own them at the time.

Abraxis signed an Asset Purchase Agreement with AstraZeneca in April 2006.  The APA provided that AstraZeneca "shall or shall cause one or more of its Affiliates to, Transfer to the Purchaser [Abraxis], and the Purchaser shall purchase and accept from Seller [AstraZeneca] or its Affiliates, as applicable, all right, title and interests of the Seller and its Affiliates in" patents relating to the active ingredient in a pain medication.  A month later, AstraZeneca and Abraxis entered into an Intellectual Property Assignment Agreement by which AstraZeneca purported to assign the patents to Abraxis.

But AstraZeneca didn't own the patents, which instead belonged to a couple of its subsidiaries.

In March 2007, Abraxis sued Navinta for infringement of the patents.  On the same day, the subsidiaries assigned the patents to AstraZeneca.  But AstraZeneca didn't get around to inking an assignment of the patents to Abraxis until almost eight months later.

The district court refused to dismiss the case on the ground that Abraxis, at the time it filed the case, lacked legal standing.  A seven-day bench trial produced a judgment in Abraxis's favor. 

But today the Federal Circuit reversed.  The 2-1 majority held that Abraxis couldn't cure the jurisdictional defect retroactively.  More specifically, the subsidiaries' assignments to AstraZeneca on the day Abraxis filed suit didn't confer standing because AstraZeneca didn't make an effective assignment to Abraxis until months later.  Abraxis Bioscience Inc. v. Navinta LLC, No. 09-1539 (Fed. Cir. Nov. 9, 2010).

The Abraxis majority relied on the court's decision last year in Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832 (Fed. Cir. 2009) (post here), which also turned on a promise to assign that the assignor didn't fulfill until too late. 

The Supreme Court granted review of Roche last month on a similar but different question — whether the federal Bayh-Dole Act entitles a university that conducted research with taxpayer money to trump one of its researcher's assignment of his patent rights. 

The Federal Circuit held that the inventor's assignment to Roche before Stanford asserted its rights under Bayh-Dole had the effect of ending Stanford's entitlement to ownership of the patent vis-a-vis the inventor's assignee.  The court likely would've reached the opposite conclusion if the inventor's assignment happened after Stanford stirred itself.  But, again, sequence seems all.
 
If the Court reverses, the ruling would probably allow university contractors to trump assignments by inventors no matter when they occurred.  That would mean, among other things:

  • potential assignees like Roche would need to get assignments not only from the inventors but also from the universities.
  • universities would need to become more assertive about claiming ownership rights under Bayh-Dole.
  • universities and inventors should pay more attention to documenting their respective rights to inventions that result from collaborative research.

A reversal could have a big impact on industries that often use or wish to use inventions resulting from university research.  The difficulty and expense of obtaining patent rights would increase.  And that could cost many millions to medical device/diagnostics and pharmaceutical industries.

On Nov. 8 and 9, the Supreme Court will take up two cases that hold promise and peril for businesses.  Blawgletter sees more cause for businesses to hope than fear.

The first of the pair, Costco Wholesale Corp. v. Omega, S.A., No. 08-1423 (U.S.), deals with the reach of copyright law's "first sale" doctrine.  If you buy something "lawfully made" under the Copyright Act — a book, a house blueprint, a Barbie® doll, even a fancy rug — the first sale rule entitles you to do pretty much whatever you want with it, as long as you don't make copies of it.  17 U.S.C. § 109(a).  But what about copyrightable works that originate in another country?  Do they count as "lawfully made"?

The Ninth Circuit said no.  It cited the Supreme Court's decision in Quality King Distrib., Inc. v. L'Anza Research Int'l, Inc., 523 U.S. 135 (1998), which held that the doctrine does extend to "round trip" works, which come into the U.S. from overseas but started in the U.S.  Copyright owners didn't like the ruling because, they said, it hurts their ability to control distribution of their products in the U.S.  The Ninth Circuit's decision, as one amicus points out, gives them more options on timing, price, and content of their works.

Companies that buy for resale oppose the Ninth Circuit's limit on the first sale doctrine.  They'd prefer freedom to get merchandise from any legitimate source, including overseas.  That allows them to pay less and get more — and that benefits consumers, too, they urge.

The second case on the calendar, AT&T Mobility LLC v. Concepcion, No. 09-893 (U.S.), also hales from the Ninth Circuit, but this one unites businesses against that court's decision.  Concepcion raises the question of how far state law can go in striking down arbitration agreements that ban class or aggregate treatment of multiple people's claims.  The Ninth Circuit applied California law to declare a class arbitration ban in AT&T Mobility's subscriber agreement unconscionable and therefore void. 

AT&T Mobility urges to the Supreme Court that the ruling violates the federal Arbitration Act, which calls for enforcement of arbitration clauses on the same footing as other contracts.  The Concepcions and consumer groups contend that the Ninth Circuit simply applied neutral state law principles.

Both sides all but hyperventilate over the bad effects of a ruling that goes against them.  The businesses assert that banning class bans would injure them — and consumers! — by depriving them of a cheap and effective way to resolve small disputes.  The consumers say upholding bans would kill the best means available to hold wrongdoing companies accountable and compensate their victims.

Blawgletter wishes to point out that, if AT&T Mobility wins (as we expect), class arbitrations will become as rare as unicorns.  Last term, in Stolt-Nielsen, the Court held that an arbitrator can't order class arbitration unless the parties' agreement more or less expressly allows class treatment.  The combination of upholding class arbitration bans and barring class arbitration absent express language permitting it will prove a fatal one-two punch.

The Ninth Circuit today took pains to express its disdain for counsel's role in goading a district judge into Kafkaesque rulings. 

Holding that the district court abused its discretion in denying a request for more time and erred in granting summary judgment (and awarding almost $250,000 in attorney's fees!) against the plaintiff, who claimed to have authored skits that appeared in National Lampoon's TV: The Movie, the panel said this of defense counsel:

Perhaps contributing to the district court's errors and certainly compounding the harshness of its rulings, defense counsel disavowed any nod to professional courtesy, instead engaging in hardball tactics designed to avoid resolution of the merits of this case. We feel compelled to address defense counsel's unrelenting opposition to Ahanchian's counsel's reasonable requests. Our adversarial system depends on the principle that all sides to a dispute must be given the opportunity to fully advocate their views of the issues presented in a case. See Indep. Towers of Wash. v. Washington, 350 F.3d 925, 929 (9th Cir. 2003); Iva Ikuku Toguri D’Aquino v. United States, 192 F.2d 338, 367 (9th Cir. 1951). Here, defense counsel took knowing advantage of the constrained time to respond created by the local rules, the three-day federal holiday, and Ahanchian's lead counsel's prescheduled out-of-state obligation. Defense counsel steadfastly refused to stipulate to an extension of time, and when Ahanchian's counsel sought relief from the court, defense counsel filed fierce oppositions, even accusing Ahanchian’s counsel of unethical conduct. Such uncompromising behavior is not only inconsistent with general principles of professional conduct, but also undermines the truth-seeking function of our adversarial system. See Cal. Attorney Guidelines of Civility & Professionalism § 1 ("The dignity, decorum and courtesy that have traditionally characterized the courts and legal profession of civilized nations are not empty formalities. They are essential to an atmosphere that promotes justice and to an attorney’s responsibility for the fair and impartial administration of justice."); see also Marcangelo v. Boardwalk Regency, 47 F.3d 88, 90 (3d Cir. 1995) ("We do not approve of the 'hardball' tactics unfortunately used by some law firms today. The extension of normal courtesies and exercise of civility expedite litigation and are of substantial benefit to the administration of justice.").

Our adversarial system relies on attorneys to treat each other with a high degree of civility and respect. See Bateman, 231 F.3d at 1223 n.2 ("[A]t the risk of sounding naive or nostalgic, we lament the decline of collegiality and fair-dealing in the legal profession today, and believe courts should do what they can to emphasize these values."); Peterson v. BMI Refractories, 124 F.3d 1386, 1396 (11th Cir. 1997) ("There is no better guide to professional courtesy than the golden rule: you should treat opposing counsel the way you yourself would like to be treated."). Where, as here, there is no indication of bad faith, prejudice, or undue delay, attorneys should not oppose reasonable requests for extensions of time brought by their adversaries. See Cal. Attorney Guidelines of Civility & Prof. § 6.

Ahanchian v. Xenon Pictures, Inc., 08-56667, slip op. at 18151-52 (9th Cir. Nov. 3, 2010).

This sort of thing happens, on both sides of the docket.  The offending lawyers may think that crossing the line into perfidy against the profession won't hurt them, at least not in the short term and possibly not ever.  And that their client will pat them on the back for pulling out the brass knuckles.  And, who knows, that maybe they'll get a reputation for hardball and thus win the fear of opponents and admiration of potential clients.

That stinks.  We, lawyers and judges alike, have to police ourselves.  And so Blawgletter sincerely thanks and earnestly congratulates the panel for letting the rest of us know that we have brothers at the bar who have sinned against us all.

Lots of people want to know what voters meant just now when they mostly, in lots of places, swept ins from office and replaced them with outs.  Did they want to vent anger?  Express anxiety?  Demand a new path?  Something else?

Blawgletter suspects people wanted to say A Great Many Things, often all at the same time.  And we bet plenty of voters can't say exactly what bothered them so much.  They just feel that something has gone wrong.  Bad wrong.

What?  And what does the what mean for lawsuits involving businesses?

We've noticed over the last several years growing impatience with organizations that don't act responsibly.  How many people do you believe feel upset at subprime borrowers for taking out loans they knew they couldn't repay?  At the mortgage companies that gave them the money knowing they couldn't repay?  At the loan servicers who can't find the paperwork or, worse, sign affidavits pretending that they can and did?  At investment banks for packaging thousands of the high-risk mortgage loans and selling them as AAA stuff to investors for millions and then taking bailout money to tide them over?  At the government for letting the whole thing happen in the first place — and then seeming powerless to fix it?

We could also talk about health care, the auto industry, taxes, deficit spending, late fees, unemployment, and on and on.  People seem to us more than anything angry, anxious, unhappy — you name it — that nobody seems willing, at last, to take responsibility.  Responsibility for mistakes, responsibility to fix them.  Now more than in our memory.

Which brings us to what could happen lawsuit-wise.  In a word, we think:  more.  For example:

  • a greater willingness by governmental entities to use litigation as a (high-profile) tool to combat and punish what citizens may view as harmful private irresponsibility.
  • a multitude of private suits against companies whose conduct over the last couple of years has earned them a public odor of selfishness, arrogance, and greed.
  • heavier emphasis, especially at trial, on showing that the other side behaved in an irresponsible way and that your side acted — and continues to act — responsibly.

Ponder this responsibility idea.  See if it resonates with you.  And tell us what you think.