The Value of E-discovery and Tort Law - Trial Judge Says Internal Emails Probably Hang UBS on Claims of Fraud in Connection with Sale of CDOs

The WSJ Law blog includes this post yesterday that illustrates the virtues of e-discovery and the ever-expanding use of tort law in claims between businesses. The post, by Ashby Jones, reports on and includes a link to a Connecticut opinon in which the buyer of cdos sued the seller (UBS) for fradulent concealment of material facts regarding an impending downgrade of the rating for the cdos. The post includes a link to the trial judge's nicely written opinion granting a motion for prejudgment secuurity for about $ 35 million. The opinion lays the facts that caused the judge to grant the motion, and relies in material part on quotes from various internal e-mails at UBS in which the securities were internally disparaged at UBS - before sale - as "crap" and "vomit."

The entire post and opinion make for an easy read for those interested in the litigation arising out of the recent financial fiascoes. For those who are not inclined to scan it all, here's a key quote that illustrates why paying for e-discovery can be worth it and why tort claims are seeing increasing use in litigation between businesses:


"But the court finds there is more to this case than that. Through direct and circumstantial evidence, Pursuit has established probable cause to sustain the validity of a claim that the UBS defendants were in possession of material nonpublic information regarding imminent ratings downgrades on the Notes it sold to the Plaintiffs, information UBS withheld from the Plaintiffs.

The use of the term “triggerless,” which was used by UBS to entice the Plaintiffs to purchase the same Notes they had earlier rejected, is akin to a representation by UBS that a gun being handed to the Plaintiffs is not loaded, when in fact UBS knew the gun was not only loaded, but was about to go off. The court takes UBS employees at their word when they referenced their Notes, these purported “investment grade” securities which they sold, as “crap” and “vomit”, for UBS alone possessed the knowledge of what their product, their inventory, was truly worth. While UBS would argue that such descriptors lack a precisemeaning, the true meaning of these words and the true value of UBS’s wares becameabundantly clear when the Plaintiffs’ multi-million dollar investment was completely wiped out and liquidated by UBS shortly after the last of the Note purchases was consummated.

That is the difference between a risk that something might happen to change the value of an investment, which is both a fact of life and a risk shared by all parties to any securities transaction, and the undisclosed knowledge that something will happen. That type of nondisclosure, whether it is on the part of a seller or a buyer, can cross the line into actionable securities fraud, and the court finds probable cause to sustain a finding that in this instance, it did. "

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Mass Tort Lawyers - Perhaps Wise to Keep an Eye on the Pleadings Before Judge Rakoff in the B of A Case

The point of this post is to suggest that mass tort lawyers for publicly traded entities need to keep at least a watchful eye on the gist of the papers being filed before Judge Rakoff in New York regarding the settlement between Bank of America and the SEC with respect to disclosure of future bonuses. Why? For one, the filings illustrate the increasing focus on lawyers and law firms in connection with alleged or actual corporate misdeeds. For another, the papers suggest issues regarding whether it is appropriate to put disclosures in non-public schedules to m & a agreements. No doubt the plaintiff's bar for securities cases is loving the proceedings.
This post from Susan Beck at AmLaw provides a nice tight summary of the new filings. The following paragraph from her story illustrates the basic issues:

"In this most recent filing, the SEC continued to dodge the question of who was responsible for the disclosure decision and refused to identify anyone at fault at BofA. But it had no problem heaping blame on Wachtell. The agency brandished excerpts from two publications by Wachtell partners informing clients about a 2005 SEC report in which the agency stated that companies should not hide certain material information in nonpublic "disclosure schedules." BofA had previously argued in court filings that this practice is common in the M&A world."

Oh What Chapter 11 Could Do for a Soon to be Bankrupt Asbestos Mining Firm

Looks like another asbestos bankruptcy is ahead. This bankruptcy apparently will involve an asbestos mine in Zimbabwe, according to this article from The Zimbabwe Times. According to the article, the mine is not paying its 2,000 workers their meager weekly wages, and some say that the mine is crucial to Zimbawe's mining sector that supports much of the national economy and many jobs.

How easy it would be to solve the mining company's problem if only chapter 11 could be invoked. If that were so, then judging by rulings in cases such as GM, Chrysler and Lyondell, the near-bankrupt mining company could use chapter 11 to create an answer for its problems. To do that, it could find a buyer willing to purchase and operate the mine through a section 363 asset sale. The asset deal could include a term conditioning the deal on a Zimbabwe bankruptcy judge issuing a global injunction specifying that that the miners are enjoined from making an claims for past wages or from making any future claims for any disease that may arise from their work.

The Zimbabwean bankruptcy court also could use its awesome powers under Zimbabwe bankruptcy code section 105 to enter an injunction stating that if the workers at the mine ever become sick and sue for damages for asbestos-related disease, then the defendant entities in those tort suits are barred from suing the mining company for contribution. (Such co-defendants, might be, for example, a later employer and companies that sold equipment used at a manufacturing plant, say for example the seller of a large pump with one asbestos gasket that was serviced twice a year by some other person). Citing the mining company's desperate straits, its key role in the economy, and the lack of other willing buyers, the judge could quickly order a hearing to be held in a remote location far away from the mine on little or no notice to interested parties such as the miners and foreseeable future co-defendants, discovery could be truncated to the point of really not existing, and the hearing could be held in marathon sessions unavailable to most persons. Then the public hearing transcripts could be sequestered for 90 days afterwards.

Can you imagine the claims of "kangaroo court justice" that would follow from US lawyers if Zimbawe's legal system actually followed such a procedure and entered such orders?

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Here are key quotes from the article:

"ZVISHAVANE – The government and management at the country’s major asbestos producer, Shabanie Mines, have failed to stop a week-long strike by the estimated 2 000 mine workers there.

Industry experts warn the prolonged job boycott by the asbestos miners could compound the company’s financial problems and cost the country millions of dollars in lost export earnings.

The workers downed tools last Monday to press the State-owned Shabanie Mashaba Mines (SMM) to pay them salaries due to them since the beginning of the year.

The Zimbabwe Times was informed that the now largely bankrupt company has failed to pay workers since January and has randomly selected a few workers each month to pay appallingly low monthly stipends of as low as US$30. It has since emerged some of the workers are now demanding that the State-run multimillion-dollar asbestos producer be returned back to self-exiled businessman Mutumwa Mawere, the former owner.

Since January, the company has made only three pay outs and only to a quarter of the 2 000-strong workforce.

The stand-off was referred to an arbitrator in Masvingo in August, but he has failed to resolve the drawn-out labour dispute.


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Since the takeover by government four years ago, the company has faced critical cash flow problems amid allegations of looting by top Zanu-PF officials. The mining firm is reportedly facing critical viability problems because of a hostile operating environment, and has for the past eight months failed to reach a compromise with the workers.

Several of Zimbabwe’s mining firms face collapse also because of lack of hard cash to buy new machinery and spares.

The perceived high political risk because of Zimbabwe’s lawlessness and political violence has also scared away foreign investors with investment funds to shore up the depressed mining sector."

New Bates White Paper on Asbestos Litigation, Bankruptcy Trusts, and Plaintiff's Habits in Naming Defendants

Just in time for upcoming asbestos litigation seminars. the economists at Bates White have issued a new report on asbestos litigation, asbestos trusts and the practices of plaintiff's lawyers in choosing and naming defendants to target in lawsuits. The article is well-worth reading as it uses data from Alameda County to prove the reality that as defendants have exited the tort system, plaintiffs lawyers seek out new defendants, among other things.

The article is in the new September 2 issue of the Mealey's report for Asbestos Litigation, or presumably is available through Lexis/Nexis in general.