Deals // Verdicts // Settlements
March 11, 2008
Big Deals
Schiff Hardin’s client, Dorel Industries Inc. completed the acquisition of Cannondale Bicycle Corporation.
This is the second bicycle company deal Schiff Hardin has handled for Dorel Industries Inc. In 2004, Schiff Hardin represented Dorel in its acquisition of Pacific Cycle, Inc.
The Schiff Hardin team was led by Bruce P. Weisenthal and Roger R. Wilen, with key assistance from attorneys Alexander B. Young, Ismail Alsheik, Melody R. Barron, John Schietinger, Larry Jacobson, Lauralyn G. Bengel, Chris L. Bollinger, Marina Rabinovich, Ann K. Pikus, Stephen J. Bonebrake, and Laura B. Friedel, as well as paralegal Paul Bernacki.
Sonnenschein Nath & Rosenthal served as counsel to Votorantim Cement North America in its recent acquisition of Bridgeview-based Prairie Material Sales, a leading supplier of ready-mix concrete, with 81 plants in Illinois, Michigan, Indiana, and Wisconsin.
Votorantim Cement North America (VCNA), through its U.S. affiliate, Votorantim Cimentos North America, Inc., acquired Prairie Material Sales, Inc. and some of its ready-
mix concrete, aggregates and related cartage businesses.
VCNA is the North-American subsidiary of Votorantim Cimentos, an international cement manufacturer and part of the Votorantim Group of companies, one of Brazil’s largest industrial conglomerates.
Based solely on projections for the acquired assets, Prairie’s 2007 sales were about $450 million. Prairie employs over 1,800 people within the businesses related to the acquired assets.
Andrew Weil, a corporate partner in the firm’s Chicago office, was the lead attorney on the deal.
The other attorneys representing Votorantim included corporate partners Linda Harris and Kathy Ingraham, and corporate associates Nadim Kazi, Jacqueline Farinella, Matthew McKim, and Katherine Moore. Other partners who worked on the deal: Barry Nekritz, real estate; Jeff Fort, environmental; Kelli Toronyi, employee benefits; Roger Brice, labor and employment; and Gary Senner, antitrust.
Verdicts
In one of the more significant business decisions in several years, the U.S. Supreme Court ruled, 5-3, in Stoneridge Investment Partners v. Scientific-Atlanta Inc. that investors could not hold secondary actors liable for securities fraud by a public company if the investors did not rely on the conduct or statements of the secondary actors. Charter Communications, a cable company, created a series of fraudulent transactions with some of its vendors that would allow Charter to overstate its revenue. The 8th Circuit dismissed the suit and the Court affirmed, with Justice Anthony Kennedy writing the majority opinion. The impact of the decision was apparent almost immediately, as the Court denied certiorari to Enron shareholders in Regents of the University of California v. Merrill Lynch Pierce Fenner & Smith Inc., a case in which the petitioners argued for a “financial services” exception to the principle that third parties who do not communicate with investors are not subject to private securities fraud suits.
Stephen Shapiro of Mayer Brown argued the case for the respondents in Stoneridge, his 27th oral argument before the Court. Here, Shapiro discusses the impact of Stoneridge.
Chicago Lawyer: How significant is the Stoneridge ruling?
Shapiro: The Wall Street Journal characterized the Stoneridge case as the most important securities case in a generation. One leading law professor in the field was quoted repeatedly in the press describing the case as the “Roe v. Wade of business cases.”
General public interest and importance were reflected in an unprecedented number of amicus briefs in a business case. There were 15 amicus briefs on each side. About 20 former SEC commissioners and enforcement officials took different positions on the case, and the current SEC was divided three-to-two on the proper resolution of the matter. Banking agencies and the Department of Treasury participated in the administration’s review of the case, and made recommendations to the solicitor general, who ultimately agreed with us about the merits.
At issue in the case was the question of whether investors in public companies can sue not only their companies and management in cases of bankruptcy or business decline, but also a wide range of other persons who did business with those public companies. Under the theory of “scheme liability” advanced by the plaintiffs in Stoneridge, all these business partners — including lenders, product vendors, investment banks, insurers, accountants, and lawyers — could be roped into multibillion-dollar class-action lawsuits and accused of complicity in the public company’s misleading financial statements.
Third parties are in no position to serve as watchdogs of an independent company’s financial reporting, and an extension of liability would have chilled ordinary commercial relations, particularly international trade. And it would have interfered with the regulation of federally supervised and insured lending institutions, as the solicitor general pointed out.
It is a good thing for the U.S. economy and investor welfare overall that the Supreme Court rejected “scheme liability” in Stoneridge.
Chicago Lawyer: Given the Credit-Suisse decision, Stoneridge, and the denial of cert in Regents, what is the landscape now for business-fraud lawsuits?
Shapiro: What the Supreme Court is saying in all these cases is that private class-action litigation is not a suitable means for resolving these issues.
In Billing [Credit-Suisse], the private suit trespassed on the SEC’s expert regulatory regime. There was a real risk of conflicting judgments that would interfere with capital formation in this country. In Stoneridge, the Court again opted for expert and disinterested SEC supervision of the subject. The Court concluded that this was Congress’ preferred policy, and that the judge-made implied right of action under Section 10(b) should not be extended to permit open-ended private suits.
A week after the Supreme Court decided Stoneridge, it denied certiorari in the Regents case, making clear that Stoneridge is not limited to manufacturers. It applies to any category of defendant (including investment banks) when the defendant does not itself make false statements to the investing public and investors rely on the public company that issued the securities. At the same time that the Court denied certiorari in Regents it also summarily vacated a 9th Circuit decision that had accepted “scheme liability” and applied it to a variety of business partners. The Court is sending a strong message with these three rulings.
Chicago Lawyer: Can you discern a jurisprudence with this Court as it relates to business regulation in general?
Shapiro: The Court’s decisions over the last several years, whether written by justices appointed by Republican or Democratic administrations, show a cautious approach generally in reviewing massive damage claims in business cases. The Court looks closely for signs of congressional intent and does not make up new liabilities demanded by trial lawyers without some congressional warrant. It is concerned about the perverse economic effects of these huge lawsuits.
The Court in Stoneridge noted that unconstrained civil liability appears to be driving U.S. securities offerings and registrations overseas. The Court, I believe, is also looking more deeply at questions of investor welfare. Not every lawsuit filed by an investor advances the welfare of investors generally. In Stoneridge, for example, the plaintiff was trying to take money from one group of innocent investors and pay it to another group of investors, with a big rake-off for the lawyers. This undermines investor welfare, and does little for investor protection. Investors pay the tab for these wealth transfers, including fees for plaintiffs’ lawyers and defense costs, not to mention disruption of business operations.
Chicago Lawyer: Heading into oral arguments in Stoneridge, what did you think was the petitioner’s strongest argument?
Shapiro: I thought the petitioner’s best argument was that everyone that has some role in facilitating a misstatement should be brought to justice. Our response to that was that Congress dealt with the issue and relegated these questions to the SEC, an expert and impartial administrative agency.
“Scheme liability” claims are elusive and their merits never get adjudicated in private cases. The threatened liabilities are so exorbitant in class-action proceedings that all defendants are forced to pay large settlements, regardless of the merits. Legal rights and obligations don’t get clarified in that kind of system. These cases were bad for the development of the law and for the economy, benefiting lawyers and no one else.
Chicago Lawyer: Can you tell from Justice Kennedy’s opinion which of your arguments struck home?
Shapiro: Justice Kennedy was apparently impressed with the direct relevance of the prior Central Bank decision of the Court, which had foreclosed private “aiding and abetting” claims under the securities laws. He didn’t want to see it eroded by re-labelling “aiding and abetting” as “scheme liability,” which the trial lawyers attempted to do. He also gave weight to Congress’ judgment that these cases should be handled by the SEC. As in Central Bank, the Court, speaking through Justice Kennedy, warned of the dangers of expansion of implied causes of action — including driving securities offerings overseas, chilling international trade, and generating unnecessary business costs to the detriment of investors and consumers. Central Bank previously explained that expansion of civil liability reduces the availability and drives up the costs of professional services too. These are still important concerns.
A Jenner & Block team led by Susan C. Levy secured a significant victory for client General Dynamics Land Systems (GDLS), a designer and manufacturer of land and amphibious combat systems for the U.S. Army and Marine Corps, in a multimillion-dollar contract dispute with an Israeli armor manufacturer involving the “best efforts” provision of their contract.
The U.S. District Court for the Southern District of New York denied the plaintiff’s petition to vacate a 2007 arbitration award in favor of GDLS and granted GDLS’s motion to confirm the award.
The companies had entered into an agreement that granted GDLS the exclusive right to market and sell the armor company’s unique technology, Light Improved Ballistic Armor (LIBA), in the U.S. in exchange for a royalty on the amount of LIBA used or sold. The contract terms provided that “GDLS will use its best effort to expand and maximize the U.S. market for the LIBA product.”
In 2005, the armor company filed an arbitration demand against GDLS claiming more than $250 million in damages due to GDLS’ alleged failure to maximize the sales of LIBA in the United States.
During the 12-day arbitration hearing, the Jenner team established that GDLS sold more LIBA in the U.S. than the claimants sold in any other country and that there were valid technical reasons why LIBA was not competitive on other products. The arbitrator ruled in favor of GDLS on all claims in the case, finding that GDLS did not breach the best efforts clause.
In denying the plaintiff’s motion to vacate and granting GDLS’ motion to confirm the award, the U.S. district court held that “the arbitrator’s determination was predicated on facts that are not reviewable by this Court under the language of the contract.”
In addition to Levy, the Jenner & Block team included partners Richard T. Franch, Susan Kohlmann, Debbie L. Berman, Matthew J. Thomas, and R. Clay Stiffler; associate Joelle K. Blomquist; and senior paralegal Jessica Merkouris.
Settlements
A federal judge has approved a $3.45 million settlement for family members who were injured when a truck rear-ended their car.
In 2003, the Charvat family — which included the father, Richard, the mother, Kelly, three daughters, ages 19, 17, and 15, and their 11-year-old cousin - was on I-55, driving to Pekin. An earlier crash stalled traffic in Livingston County, and the Charvat’s car was struck from behind by a tractor-trailer driven at 57 m.p.h.
All the occupants in the car were injured. There were two brain injuries, a ruptured thoracic aorta, a collapsed lung, and fractures of the ribs, pelvis, clavicle, femur, ankle, jaw, and teeth. All of the family members suffered some scarring.
The family members were represented by Robert J. Bingle of Corboy & Demetrio and James Behrens and Michael Schroeder of Behrens, Gioffre & Schroeder, of Cleveland. The defendants were represented by Stephen M. Passen.
Comments
Got something to say?