At a recent asbestos litigation conference, one of the speakers reminded everyone of the old maxim to  " be careful what you wish for"  in litigation. In that vein, consider the current US legislative battles about the Iqbal/Twombly pleading standard that makes it materially harder for plaintiff's to allege a complain that withstands a motion to dismiss. In this dawning age of  global litigation, choice of venue and  law issues are increasingly important due to  global financial markets.  Within that realm, consider the importance of the pleading standards as applied to, for example, the fact pattern set out in the text below from this interesting article about an investigation into an investigation by the SEC, with both investigations related to a sudden plunge in the price of a biotech stock.  

Suppose the report referred to below is made public, with or without full facts being disclosed in the report . Under the new Iqbal/Twombly pleading standards in the US, would incorporation of the report be enough for a complaint to survive a motion to dismiss ? If not, are US firms going to find themselves facing class actions in Europe, Australia or other venues where pleaidng standards are now or may be less demanding than the Iqbal/Twombly standard ? Will suits seek out countries where class action laws exits and litigation funding is far more accepted than it is in the US ? If that happens to one degree or another, will US defendants be more or less happy than they were under the old Conley v. Gibson pleading standard ?

I'm not sure how this all turns out. But I am starting to wonder if the Iqbal/Twombly standard will end up being one of those wishes that it is later regretted by US industry.  In short, it seems to me the wish for the higher pleading standard could end as  a wish that ultimately accelerates litigating tort claims outside the US, . Outside the US, defendants certainly will have work to do to try to obtain the  benefit of the  Daubert  standard so much loved by defendants.

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Dendreon stock mauling probed by regulators

By Matthew Goldstein

NEW YORK (Reuters) - A lightening fast sell-off of shares of biotech company Dendreon <DNDN.O> last April is drawing scrutiny from U.S. securities regulators and the independent monitor assigned to keep tabs on those regulators, said people familiar with the matter.

They said an investigation by the Securities and Exchange Commission into the still unexplained trading event, during which shares of Dendreon plunged more than 69 percent in 70 seconds, is ongoing.

It is not clear if the SEC inquiry into the incident, which some academics and investors have blamed on a combination of short-sellers and high-frequency trading programs, will lead to an enforcement action, said these same sources.

SEC spokesman John Nester declined to comment.

The SEC investigation partially overlapped with an inquiry conducted last summer by SEC Inspector General H. David Kotz to determine whether securities regulators were paying enough attention to the matter.

In December, Kotz submitted a confidential report on the results of his inquiry to SEC Enforcement Director Robert Khuzami, the sources said.

The SEC is considering a Freedom of Information request from Reuters to release the inspector general's report. But a person familiar with the situation said regulators will likely deny the request on the grounds that the report discusses an ongoing probe.

HEAD-SCRATCHING

The SEC cited a similar reason for rejecting an earlier FOIA request from Reuters, seeking information about any complaints filed by investors over the April 28 incident.

It is unusual for the SEC's inspector general to conduct an inquiry into the agency's handling of an ongoing investigation. Kotz's office initiated the investigation at the request of an investor and Sen. Charles Grassley, according to sources and the inspector general's semiannual

report.

Grassley spokeswoman Beth Levine said his office had not received a copy of Kotz's completed report.

The Iowa Republican has had a history of taking issue with the pace of SEC investigations and asking Kotz's office to review the agency's handling of enforcement matters.

A Dendreon spokeswoman declined to comment on the investigations.

Last April, the $16 plunge in shares of the Seattle-based biotech generated a good deal of head-scratching on Wall Street. That's because in little over a minute, the equivalent of an entire day's worth of trading activity in Dendreon shares took place before Nasdaq Stock Market officials halted the stock.

Stock market officials initially suspected the rapid-fire selling was sparked by a so-called fat finger trade, or a broker putting in an erroneous order to sell too many shares. But Nasdaq officials, without issuing any comment, did not void any of the trades.

STOP-LOSS ORDERS

The April 28 plunge of Dendreon shares coincided with speculation in the market that the company was going to report poor test results that afternoon for its prostate cancer drug Provenge. In fact, the opposite occurred, and the company reported generally positive test results.

Once trading was allowed to resume, the stock quickly regained all of its losses. But the freak sell-off resulted in losses for retail investors who had so-called stop-loss orders with their brokers to sell shares at a predetermined price.

When a stock plunges quickly, it can trigger a stop-loss order, a sale at a previously designated price intended to limit losses. A stop-loss order can cause an investor's shares to be sold at price lower than the one he wanted.

Reuters reported in October that many investors with stop-loss orders lost money in the sell-off and some complained to regulators and asked them to look into the matter.

There have been numerous theories for the unusual trading event.

Some investors have blamed the sell-off on a so-called bear raid by short-sellers looking to profit from a precipitous decline in a stock. Others attribute the ferociousness of the selling to computer-driven high-frequency trading programs that scan the markets looking to take advantage of trading trends.

James Angel, a professor at Georgetown University's McDonough School of Business, previously told Reuters that high-frequency trading programs may have exacerbated the plunge when the algorithms these trading firms use all glommed onto the same trend.

(Reporting by Matthew Goldstein; Editing by Steve Orlofsky)

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Susan Beck has a great AmLaw summary article today with links to underlying complaints, and to a Wall Street Journal article on the same topic by Nathan Koppel. The articles explain that ratings agencies are defending claims by Calpers and others based in part on the notion that their pronouncements are constitutionally protected opinions that invoke First Amendment standards. The articles, however, do not address whether that argument will fly against, for example, investors not based in the United States. Claims by non-US investors plainly will create choice of law issues.

In Illinois, there are fairly well-settled rules regarding claims for negligent misrepresentation of information. Inquiry will focus on, among other things, the scope of the duty related to the information supplied. A 2006 Illinois Supreme Court opinion (here) states the rules as follows:

"To state a claim for negligent misrepresentation, a plaintiff must allege: (1) a false statement of material fact; (2) carelessness or negligence in ascertaining the truth of the statement by the party making it; (3) an intention to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; (5) damage to the other party resulting from such reliance; and (6) a duty on the party making the statement to communicate accurate information. Board of Education of the City of Chicago v. A, C & S, Inc., 131 Ill. 2d 428, 452 (1989). See also Fox Associates, Inc. v. Robert Half International, Inc., 334 Ill. App. 3d 90, 94 (2002); Neptuno Treuhand-Und Verwaltungsgesellschaft Mbh v. Arbor, 295 Ill. App. 3d 567, 572-74 (1998). Where, as here, purely economic damages are sought, this court has imposed a duty on a party to avoid negligently conveying false information only if the party is in the business of supplying information for the guidance of others in their business transactions. Brogan v. Mitchell International, Inc., 181 Ill. 2d 178, 183-84 (1998); Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69, 89 (1982)." (emphasis added).

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The AmLaw blog post here describes and includes a link to a newly filed complaint that seeks $ 1 billion and a class action for Mexican investors hurt by the Stanford ponzi scheme. The complaint invokes aiding and abetting claims against Willis and an insurance broker. Of note, the complaint was not filed by a typical class action firm and instead was filed by Strasburger & Price, an old-line and full-service Texas law firm typically aligned with corporate interests that some might think would indicate the firm would not file a class action suit. According to the article:

"The complaint states that the defendants gave Stanford Financial "safety and soundness" letters designed to help it market its investments. "Willis and BMB crossed the line from being mere insurance brokers for the Stanford Financial Group," the complaint alleges. "In creating and submitting these letters into the stream of commerce, [the defendants] actively and materially aided Stanford Financial to perpetrate the massive Ponzi scheme now alleged by the SEC."

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Per this article from Delaware Online:

June 25, 2009
DuPont sued over asbestos in ArgentinaEx-Lycra plant workers say they were exposed
By ANDREW EDER and AARON NATHANS
The News Journal

DuPont Co. exposed workers in Argentina to asbestos until the late 1990s despite knowing the risks of the material, according to three lawsuits filed Wednesday in Delaware.
The lawsuits came from former workers at a Lycra spandex plant in Mercedes, Argentina, that was part of DuPont until the sale of its textile unit in 2004.
DuPont knew that exposure to asbestos could harm workers as early as 1964, the complaints said, but the company continued to use asbestos in the heat pipes and machinery of its Argentina facilities until the late 1990s.
The workers, Cristian Dematei, Juan Carlos Laborda and Ceferino Ramirez, are represented by the Wilmington law firm Jacobs & Crumplar. The law firm said more lawsuits would follow.
Dematei, who worked at the facility for 11 years, suffers from asbestosis, a chronic condition that causes shortness of breath and an increased risk of lung cancer, the complaint said.
Laborda worked at the plant from 1968 to 1980, according to his complaint, and suffers from asbestosis and asbestos-related lung cancer.
Ramirez worked at the facility for 32 years before retiring in 1993. He has been diagnosed with asbestos-related laryngeal cancer and asbestosis, his lawsuit said.
The lawsuits allege that workers were never warned of the dangers of asbestos exposure or given respiratory protection.
Amanda Velazquez, asbestos medical paralegal for Jacobs & Crumplar, said: "They need to break the double standard," referring to DuPont stopping using asbestos in U.S. plants earlier.
DuPont spokesman Dan Turner said, "While we have not had the opportunity to review the filing yet, and cannot comment on the specifics, we do find it puzzling that the plaintiff's attorneys have filed the compliant in Delaware rather than the country of origin. The safety and health of our employees, our neighbors and our community has and continues to be DuPont's highest priority."
Velazquez said it makes sense to sue a company in the place where it is based.

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Who knew- apparently there is "libel tourism," a concept I learned about from reading Walter Olson at Pointof Law and then reading a recent Wall Street Journal article for which he provided the link. The article arises from a libel judgment entered against a science writer (Mr. Singh) who commands the respect of the WSJ. The article goes on to say that the burden of proof is essentially reversed in Britain, and that the burden is on the author to prove is on the author to prove that the article is "not libelous." This particular case apparently arose from the science writer taking issue with an article in which chiropractors asserted that they could cure are things such as colic, and the author called that claim "bogus." A 2006 article from Overlawyered indicates the House of Lords that year adopted a defense based on fair public comment. A group known as Sense About Science is complaining bitterly. Mr. Singh's credential s appear quite good; an account of his situation and appeal is posted here, and describes him as follows:

"Simon Singh completed a BSc in physics and a PhD in particle physics at Cambridge University before becoming a director and producer in the BBC science department. He worked on Tomorrow's World and Horizon and won a BAFTA for directing a documentary on the subject of Fermat's Last Theorem. After leaving the BBC, he wrote a series of bestselling popular science books, such as "Fermat's Last Theorem", "The Code Book" and "Big Bang". He has also presented several radio and TV programmes, and his educational initiatives include the Enigma Project and the Undergraduate Ambassadors Scheme. In 2003 he received an MBE for services to science education and communication."

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A May 29, 2009 law.com article by Mark Hamblett updates on this case. The update provides some additional legal commentary and indicates jury selection was delayed this week, perhaps for settlement talks.

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A May 7, 2009 Law.com article by Mark Hamblett from the New York Law Joournal describes an upcoming trial for a fascinating "crimes against humanity" case against Shell by Nigerians. To whet your appetite, here are some exceprts from the article:

"A federal judge has cleared one of the last obstacles to a May trial for families of Nigerian environmental activists who are seeking to hold a Dutch oil company liable for violations of international law committed by the Nigerian military government.

In what will be one of the first times, if not the first time, that a corporation goes on trial for crimes against humanity, Southern District of New York Judge Kimba Wood rejected all but one motion to dismiss by Shell Petroleum, N.V. and other defendants in Wiwa v. Royal Dutch Petroleum, 96 Civ. 8386 and Wiwa v. Anderson, 01 Civ. 1909.

The claim alleges that executed Nigerian writer Ken Saro-Wiwa and other activists were the victims of a campaign of terror launched by the Nigerian government because they fought oil exploration in the Ogoni region of Nigeria. The company, the plaintiffs allege, was complicit in the 1995 hanging of Saro-Wiwa and other activists and the torture, jailing and ultimate exile of Saro-Wiwa's brother, Dr. Owens Wiwa.

Filed under the Alien Tort Statute (ATS) and the Torture Victim Protection Act, the complaints in the two cases contend that the defendants, Shell Petroleum, N.V., recruited Nigerian police and military to attack villages and crush opposition to the company's development in the region. While the plaintiffs are seeking to hold the company vicariously liable, they are attempting to hold directly liable Brian Anderson, the head of the company's Nigerian operation.

Jury selection in the case is expected to begin May 26."

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Update: This post updates a Feb. 20 post. The new news is a Law.com article regarding a new Madoff-related lawsuit in Florida naming a feeder fund (Tremont) and KPMG as defendants for alleged failures in due diligence and monitoring of investments placed with Madoff. The same article includes links to yet another article on clawback suits by the Madoff trustee.

According to the Law.com article, the Florida lawsuit includes the following allegations:

"The lawsuit contends a number of red flags should have made Tremont wary of investing with Madoff.

The plaintiffs contend they depended upon the information supplied by Tremont in making their investment decisions and received false reports indicating the value of their investments was steadily rising.

Plaintiffs also said they were led to believe Tremont diversified its investments instead of putting all the money in one basket. The complaint contends Tremont promised clients it would monitor the investments and change the strategy if necessary. The lawsuit contends Tremont would have found the fraud with proper oversight.

Instead of finding problems, however, the complaint said Tremont's Rye Investment Management boasted its funds have "historically displayed steady and consistent performance, especially during market downturns," implying a conservative investment scheme.
The lawsuit also states several plaintiffs reached out to Rye managers about how the funds were doing. A supervisor told one plaintiff that his accounts had not lost value despite market weaknesses last fall. A supervisor told another investor around the same time that the fund had not suffered losses because it was shielded from the subprime crisis.

The plaintiffs also maintain KPMG did not adequately do its job as auditor despite saying it performed its audits to national standards.

"KPMG's audits failed to reveal the fact that the assets reported on each of the Rye funds' financial statements did not actually exist," the plaintiffs stated.

They sued for fraud, securities violations, negligence, negligent misrepresentation, breach of fiduciary duty, breach of contract and professional malpractice, and are seeking a jury trial.

"This is a case about the greed of investment professionals and their auditors taking priority over the most basic adherence to their contract, tort and fiduciary duties," the complaint contends."


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The DOJ's efforts against Stanford and UBS AG are much in the news these days, with a good UBS summary article here and images of DOJ litigation papers available here (look for links in the box on the right hand side.)



The question that occurs to me is: what kind of fall out and follow up lawsuits will emerge? We are seeing in the Madoff situation lots of efforts to pin financial losses and blame on advisers who connected investors to Madoff's enterprise, and thoughts from lawyers at Sonnenschein and elsewhere regarding potential clawback claims by trustees and/or others. One would think the same result will follow here. Some interesting law likely will evolve as to whether or how much one professional has a duty to investigate another before making a recommendation or referral. There are existing claims and case law. See for example a law firm (Brown McCarroll) website article addressing liability of call centers, and an American Bar Association page with links to articles on claims against lawyers for allegedly negligent referrals. This all should make for some fascinating legal wrangling, with global tort choice of law issues.

The situations also may be a boon for multilingual lawyers.

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When is a multinational at risk for "aiding and abetting" human rights violations?

The answer is evolving. One case on the issue is Khulumani v. Barclay National Bank Ltd., 504 F.3d 254 (2d Cir. 2007). Recent developments are described in an interesting law.com article online as of today and written by Professor Georgene Vairo of Loyola Law School in Los Angeles; the article is available here

Much of the article focuses on an April 8, 2009 opinion by Judge Scheindlin that analyzes the issues in depth on a motion to dismiss in a case known as In re South African Apartheid Litigation. The opinion dismissed some claims but sustained others. The opinion by Judge Scheindlin is here, and seems well worth reading. Of note, the opinion allows American Pipe tolling of statutes of limitation in favor of the plaintiffs. That's a powerful incentive to the filing of class actions. It's also a weapon against governments - I may have been the first to apply it against the U.S. government, which we did successfully when representing businesses seeking to recoup taxes paid under an unconstitutional "Harbor Maintenance" tax. See Stone Container Corp. v. U.S., 229 F.3d 1345 (Fed. Cir. 2000).

The following excerpt from Professor Vairo's article provides a summary of some but not all of the "aiding and abetting" and conspiracy issues evaluated by Judge Scheindlin:

"On the other hand, she refused to dismiss claims that Ford Motor Co., General Motors Corp., International Business Machines Corp. and other companies aided and abetted torture and other atrocities committed by the regime, such as arbitrary denationalization by a state actor and cruel, inhumane and degrading treatment because such torts are well established in the community of nations.

Scheindlin's opinion is important because she takes a careful look at the standards for imposing liability, noting that the 2d Circuit had not left her with precise standards on a number of issues. Having established that aiding and abetting may violate the ATS does not answer the question of the type of mens rea required by nonstate actors. She rejected the defendants' argument that specific intent be required, holding instead that international law "requires that an aider and abettor know that its actions will substantially assist the perpetrator in the commission of a crime or tort in violation of the law of nations."She noted that the 2d Circuit had not addressed the question of whether conspiratorial liability was a tort cognizable under the ATS, but found that there was no consensus among nations and therefore refused to recognize conspiracy as a tort. According to Scheindlin, the defendants' political-question and international-comity arguments were largely eviscerated by her rulings on each of the classes of claims raised in the case. She noted the U.S. State Department's opposition to the litigation, as well as that of the current government of South Africa. She dismissed the State Department's arguments because they were vague, on the one hand, and irrelevant to the remaining claims. The political-question doctrine argument would have merit had the case impacted U.S. foreign policy, but she failed to see how litigating the remaining claims would have any impact on it at all."

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A prior post on this blog described some of the global choice of law issues arising from the Madoff fiasco. One set of issues will revolve around which nation's law should be applied to decide claims regarding whether investment advisers had a duty to investigate Madoff's operations, and how much investigation is required.

The facts and claims continue to expand, and choice of law will become ever more complex, subject of course to choice of law clauses and whether they can or will be enforced. Thus, even as Mr. Madoff was pleading guilty this week, the WSJ was running articles this week describing ongoing investigations into money transfers between various Madoff entities in London and New York. Meanwhile, more claims have been filed with cross-border parties.
For example. a Lawcom article describes a suit filed in the State of Washington, and goes on to say:

"[The plaintiff] Dennis, an American living in Switzerland, alleges that FutureSelect invested his money with the Rye Fund, part of a group of hedge funds owned by Rye, New York-based Tremont Group Holdings Inc., and that the Rye Fund in turn place the money with Madoff. The derivative lawsuit was filed on behalf of Dennis by Steve Berman, an attorney with the law firm Hagens Berman Sobol Shapiro in Seattle."

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