Alison Frankel

Professor Randall Thomas of Vanderbilt Law studies M&A class action litigation. To him, it’s obvious that some plaintiffs’ firms file these now ubiquitous suits simply to collect a so-called “deal tax” and others work the cases hard to win better terms for shareholders. Yet commentary on M&A class actions tends not to distinguish among shareholders’ firms, he said. “It always bothered me that all plaintiffs’ firms are painted with the same brush – they’re either shareholder champions or scum of the earth,” Thomas told me. “The reality is that there are big differences.”

Thomas and two other eminent professors determined to quantify those differences. In a new working paper called “Zealous Advocates or Self-Interested Actors? Assessing the Value of Plaintiffs’ Law Firms in Merger Litigation,” Thomas worked with C.N.V. Krishnan of Case Western’s business school and Steven Davidoff Solomon of UC Berkeley School of Law (and DealBook) to identify the best shareholder firms in M&A litigation. (Hat tip to Kevin LaCroix at D&O Diary.)

They analyzed 1,739 cases between 2003 and 2012, ranking plaintiffs’ firms under four different criteria: raw number of filings; lead counsel appointments; lead counsel appointments in cases involving an institutional investor as lead plaintiff; and fee awards of more than $1 million when the firm served as lead counsel in a case led by an institutional investor. The authors regard the last category as the best indicator of a plaintiffs’ firm’s prominence. They unstintingly refer to the five shops listed in that table as the top law firms in the M&A class action business.

I’ll end the suspense right here. The paper’s chart toppers for cases with fees of more than $1 million are, in order: Robbins Geller Rudman & Dowd; Grant & Eisenhofer; Bernstein Litowitz Berger & Grossmann; Milberg; and Kessler Topaz Meltzer & Check. And according to the study, these firms deserve the big fees they’ve been awarded. They bring better cases and litigate more actively than other plaintiffs’ firms; their dockets have more entries and they’re likelier to ask for expedited proceedings and preliminary injunctions. Their cases are dismissed less often than those brought by other shareholder firms. Most importantly, they also win the best results, according to the study. Shareholders represented by the top 5 firms are more likely to see deal terms sweetened than those represented by other firms.

“Our findings thus support the conclusion that top lead law firms get superior lawsuit outcomes for their clients, and prosecute cases more successfully, as compared to other law firms,” the professors said. “Indeed, the top 5 law firms, based on their popularity with non-individual plaintiffs and based on their large attorneys’ fees’ awards in the recent past, seem to deliver the best outcomes for their clients.”

If you are the most profitable corporate law firm in recorded history, with a habit of loudly defending the business judgment of corporate boards, you have to expect to take more than your share of shots. Wachtell Lipton Rosen & Katz is the Goldman Sachs of the law biz: When someone claims the firm has done something wrong, it’s news.

I offer that observation as context for the allegations in a brief filed this week by a plaintiffs’ lawyer whose client opposes Hewlett-Packard’s controversial settlement of shareholder derivative claims stemming from the company’s disastrous $11 billion acquisition in 2012 of the British software company Autonomy. Wachtell negotiated the settlement, which called for shareholders to release all claims against HP’s directors and officers but also for plaintiffs’ lawyers from Cotchett Pitre & McCarthy and Robbins Geller Rudman & Dowd to team up with HP in litigation against former Autonomy officers. (Plaintiffs’ lawyers were originally slated to be paid $18 million for their efforts.) HP is Wachtell’s client. It does not represent HP’s directors, who have their own lawyers. But according to dissenting shareholder A.J. Copeland and his lead lawyer, Richard Greenfield of Greenfield & Goodman, Wachtell was actually acting in the interest of HP’s board members, not the company itself, when it made a deal to release shareholder claims against HP directors.

“Wachtell inappropriately represented simultaneously both HP and the individual director and officer defendants,” the brief said, “and seemingly succumbed to the pressure to construct a settlement that unjustly benefited the individual defendants and provided, at best, nominal value to the company. Since the interests of the company were wholly incompatible with the goal of the individual defendants to eliminate their liability, Wachtell should not have provided such de facto dual representation.”

I’ll admit it: I was among the predictors of doom last year when a three-judge panel of the 3rd U.S. Circuit Court of Appeals issued its decision in Carrera v. Bayer. The Carrera decision, as you may recall, addressed the requirement that class membership be “ascertainable” in order for class actions to be certified. The facts of the case – a consumer class action claiming deceptive labeling of a Bayer diet supplement – were idiosyncratic, but the appellate holding that affidavits from purported purchasers aren’t sufficient to ascertain class membership seemed broad indeed. Consumer class action advocates asked for en banc review, asserting a credible argument that the decision was a death knell for claims based on low-cost items for which purchasers don’t save receipts. The 3rd Circuit declined to hear the case en banc, but in a dissent, four judges said they were worried that the Carrera decision went too far, giving rise to “fear that some wrongs will go unrighted because wrongdoers gamed the system.”

After Carrera, ascertainability has become one of the buzziest words in class actions. (And yes, I’m aware of the nerdiness of living in a world where “ascertainability” can fairly be described as a hot topic.) When Hershey, for instance, filed its Oct. 14 opposition to the certification of a class of purchasers of its Special Dark chocolate products, its primary argument was that class membership can’t be ascertained. Consumers don’t save receipts for chocolate bars, Hershey said, and even good faith affidavits from purchasers are unreliable because it’s hard to remember if you bought a particular kind of chocolate in a specific time period.

The Hershey brief got me wondering just how effective defendants’ ascertainability arguments have been since Carrera. Has the decision really been the class action killer it was billed to be? Hershey and other class action defendants certainly say so in their briefs opposing class certification. Hershey’s memo cites eight decisions – just in food-labeling cases in federal court in California – that have denied class certification to supposedly unascertainable classes. “Numerous federal courts in California and elsewhere have followed Carrera, especially in cases where, as here, the product at issue is a low-cost grocery item,” Hershey said in its brief.

Who would ever have predicted that convicted al Qaeda operative Zacarias Moussaoui would be more eager to provide testimony to help terror victims than former Virginia congressman and House majority leader Eric Cantor? Moussaoui, as I told you yesterday, has contacted the federal district court in Brooklyn, offering to provide information about al Qaeda funding to plaintiffs suing Arab Bank and other financial institutions. Cantor, meanwhile, has been subpoenaed in a different terror-funding case – accusing Bank of China of financing Palestinian Islamic Jihad – to testify about his meeting in Israel with Israeli Prime Minister Benjamin Netanyahu in August 2013. On Sept. 30, the U.S. House of Representatives’ general counsel moved to quash the subpoena.

Lawyers for the House argued on Cantor’s behalf that the subpoena is precluded by the Speech or Debate Clause of the U.S. Constitution, which is supposed to shield government officials from testifying about their actions as lawmakers. “It is difficult to overstate how crippling it would be to federal officials’ efforts to carry out sensitive discussions with foreign officials if those discussions were to be readily exposed to discovery,” the House quash motion said.

Since then, Cantor’s subpoena has turned into a hot dispute between Bank of China and lawyers for the victims, with both sides submitting letters this week to U.S. District Judge Shira Scheindlin of Manhattan, who is overseeing terror-finance litigation against the bank. Plaintiffs’ lawyers in the case, Moriah v. Bank of China, told the judge that they need Cantor’s testimony to prove the Chinese government pressured Netanyahu to withdraw Israel’s support for victims’ claims. As you may recall, the victims contend Israel initially urged them to sue Bank of China, even supplying their lawyers with critical intelligence about a 2007 meeting in which Israeli counterterrorism officials supposedly warned the Chinese government about accounts held by an alleged member of the Palestinian Islamic Jihad. According to the victims, Israel at first promised to permit one of the officials who attended the 2007 meeting, Uzi Shaya, to give a deposition. But as the Netanyahu government’s relations with China warmed, Israel refused to grant Shaya permission to testify. And without his evidence on the 2007 meeting in China, Judge Scheindlin has said, plaintiffs are going to have a hard time establishing that Bank of China had reason to suspect it was processing transfers for an alleged terrorist.

Zacarias Moussaoui, who pleaded guilty in 2005 to conspiring in al Qaeda’s Sept. 11 attacks on the United States, says he has information about how al Qaeda financed its operations and he wants to provide it to lawyers representing terrorism victims.

After a federal jury in Brooklyn found Arab Bank liable last month for financing Hamas operations during the Second Palestinian Intifada, Moussaoui sent a handwritten letter to the clerk of the court from a super-maximum security prison in Florence, Colorado, where he is serving a life sentence. (Moussaoui said he heard about the jury verdict on Fox News.) “I want to testify against financial institutions such as Arab Bank, Saudi American Bank, the National Commercial Bank of Saudi Arabia” and several individuals, Moussaoui wrote, “for their support and financing of Usama bin Laden and Al Qaeda from the time of the Eastern Africa embassy bombing, U.S.S. Cole bombing and 9/11.”

In the letter, which was docketed Friday in the Arab Bank case, Moussaoui said that plaintiffs’ lawyers representing victims of the Sept. 11 attacks have requested permission to meet with him but that prison officials have denied the request. Moussaoui also claimed that he has previously offered to testify about al Qaeda financing in letters to the judge overseeing the Sept. 11 victims’ consolidated litigation, U.S. District Judge George Daniels of Manhattan, but that he does not know if the prison has mailed them. The docket in that case does not show any communications from Moussaoui, who was once named as a defendant by Sept. 11 victims.

If you bought Alibaba shares last month when the Chinese mobile commerce company went public, you participated in the biggest-ever initial public offering. Alibaba raised $25 billion from investors when its shares began to trade on the New York Stock Exchange. Its price has dropped a bit from its record high of more than $99 on the first day of trading, but as of Thursday afternoon Alibaba was swinging back up toward $90 a share.

You’d better hope that the stock price is as solidly based as it seems, because if Alibaba’s officers and directors are engaged in fraud, shareholders will have a very tough time suing for their losses. That’s certainly what the company intends. On the very last page of its 38-page articles of association, Alibaba includes a provision stating that any shareholder who initiates or assists in a claim against the company must pay the company’s defense fees and costs unless shareholders win a judgment on the merits. This sort of “loser pays” fee-shifting is an exception to the general rule in the United States that each side bears its own costs of litigating – and it effectively precludes shareholder class actions suits because investors and their law firms don’t want to risk paying defendants’ legal fees.

If you’re a shareholder who suspects wrongdoing at Alibaba, good luck finding a plaintiffs’ firm to represent you. Shareholders will have the same problems if they try to sue Smart & Final, a grocery chain in the western United States that also went public last month, or if they want to go after ATD Corp, a tire distributor that announced plans for an IPO in August. Both of those companies – along with six other limited liability corporations and limited partnerships, according to Institutional Shareholders Services – have also adopted charter provisions that shift the cost of defending shareholders’ claims to investors who sue and lose.

Is there any Allergan shareholder who isn’t aware that William Ackman’s hedge fund, Pershing Square Capital, and the Canadian pharmaceutical company Valeant slipped through a loophole in the securities laws when they teamed up on a hostile bid for the Botox maker? Or that Allergan believes the loophole is actually a violation of the law and Pershing is engaged in insider trading? If so, I’d like to know the name of the remote Pacific atoll where you’ve apparently been luxuriating without the Internet, newspapers and television for the past few months. This cleverly lawyered deal has been chronicled (including by me) with the sort of play-by-play analysis that’s usually reserved for NFL playoff games or middle-school romances.

Yet according to Allergan’s new bid for a preliminary injunction, filed Monday night in federal court in Santa Ana, California, Allergan shareholders have been operating at a critical disadvantage: They haven’t fully understood the risk that Pershing and Valeant were breaking the law. Allergan’s lawyers at Latham & Watkins and Wachtell, Lipton, Rosen & Katz argue not only that Pershing shouldn’t be permitted to vote its nearly 10 percent stake when Allergan shareholders convene on Dec. 18 to consider the ouster of six Allergan board members, but also that Pershing should also be enjoined from voting the proxies it collects in the formal proxy fight the hedge fund launched on Sept. 29. Shareholders, according to Allergan, can’t make a well-reasoned decision about replacing directors until Pershing discloses its supposed insider trading.

“A preliminary injunction against voting proxies until supplemental disclosures have been made is the only means of avoiding an uninformed shareholder vote,” Allergan said in the brief filed Monday.

Former AIG honcho Maurice “Hank” Greenberg’s $50 billion Fifth Amendment claims against the U.S. government may be, as New Yorker writer John Cassidy recently said, more of a comic extravaganza than a legitimate case, but there’s no doubt that the Greenberg trial underway in the U.S. Court of Federal Claims will contribute to the historical record of the government’s response to the 2008 economic crisis. Former U.S. Treasury Secretary Hank Paulson testified Monday, and his successor, Tim Geithner, and former U.S. Federal Reserve Chairman Ben Bernanke are also on Greenberg’s witness list. We can all thank Greenberg for muscling their sworn testimony into public, regardless of the crotchety old rich guy’s gall and his long odds of actually winning.

Meanwhile, there’s a much less celebrated case over the 2008 economic crisis underway in federal district court in Washington, D.C. It doesn’t have the glamour of David Boies of Boies, Schiller & Flexner (Hank Greenberg’s lawyer) grilling former Cabinet officials over the AIG bailout, but it involves between $6 billion and $10 billion in real money — and it’s also contributing real facts to what we know about how government officials in the thick of bailout frenzy implemented policies set at the highest levels.

I’m talking about litigation between JPMorgan Chase and the Federal Deposit Insurance Corporation over which of them was left holding the scorching hot potato of liability for Washington Mutual’s misrepresented mortgage-backed securities. As you may recall, as WaMu was collapsing in 2008, the federal government pushed JPMorgan to acquire the Seattle-based bank. One of the many branches of subsequent litigation over WaMu’s failure was a suit by Deutsche Bank, as the trustee overseeing many WaMu MBS, against JPMorgan, asserting that JPMorgan was on the hook to MBS investors for breaches in contractual representations and warranties about the securities. Deutsche Bank said JPMorgan owed WaMu MBS investors as much as $10 billion for their put-back claims.

If you want to know why the American public has such a dim view of lawyers, you should read an opinion issued last month by the 3rd U.S. Circuit Court of Appeals in Williams v. BASF.

The opinion describes the allegations of a class of onetime asbestos plaintiffs who claim that a BASF predecessor and lawyers at Cahill Gordon & Reindel conspired to cheat them out of their rightful recovery in decades-old asbestos suits. According to the plaintiffs, who have depositions and document evidence to back their accusations, Cahill and its former client, a BASF predecessor, systematically hid and destroyed evidence that the company’s products contained asbestos.

The alleged coverup began in the early 1980s and supposedly affected thousands of asbestos plaintiffs who settled on the cheap or dismissed cases because they were deprived of evidence they should have had. After a former company scientist mentioned the supposed scheme at a deposition in 2009, six former plaintiffs filed a class action against Cahill, BASF and assorted individual defendants in federal court in New Jersey, claiming that they’d been defrauded in their previous cases.

(Reuters) – On Wednesday, the $200 million activist hedge fund Stilwell Value and its founder, Joseph Stilwell, filed a complaint against the Securities and Exchange Commission in federal court in Manhattan. Stilwell’s lawyers at Skadden, Arps, Slate, Meagher & Flom and Post & Schell are asking for a declaratory judgment to block the SEC from bringing an administrative proceeding against Stilwell, who has been under investigation since 2012 for interfund lending. According to Stilwell’s complaint, if the SEC follows through with its threats to sue him in an administrative proceeding – rather than prosecuting its case against him in federal district court – it will be breaching the U.S. Constitution.

I know what you’re thinking: This is another case claiming that SEC administrative proceedings violate defendants’ due process rights. We’ve seen those arguments before, from former Goldman Sachs director Rajat Gupta, who forced the SEC to refile its case in federal court after U.S. District Judge Jed Rakoff refused to toss Gupta’s constitutional claims in 2011, and more recently by “Big Short” investment advisor Wing Chau of Harding Advisory, who tried unsuccessfully to stop the SEC from litigating its claims against him in an administrative proceeding. Both Gupta and Chau argued that the SEC has unfair, and unconstitutional, advantages when it brings administrative proceedings since (among other things) are no juries, no federal rules governing discovery and no immediate rights to appeal outside of the agency.

Trust me: Stilwell’s constitutional theory is completely different and completely novel. What’s more, it has the potential to affect the regulatory regime not only at the SEC but at just about every federal agency with enforcement powers.