Posted in Contract ERISA Preemption Promissory Estoppel

Judge Oetken Teaches Doctors a Hard Lesson about Promissory Estoppel

A promise made is a promise kept—unless it is made over the phone under an ERISA plan.  So ruled Judge Oetken last week, in a dismissal of a doctor’s lawsuit to collect payment allegedly promised by a healthcare benefit plan administrator.  McCulloch Orthopedic Surgical Servs., PLLC, a/k/a Dr. Kenneth E. McCulloch v. United Healthcare Ins. Co. of New York, a/k/a Oxford, No. 14–CV–6989 (JPO) (S.D.N.Y. June 8, 2015).

Dr. McCulloch, an orthopedic surgeon, performed arthroscopic knee surgery on a patient.  Prior to performing the surgery, his staff contacted United Healthcare Insurance Company of New York (aka “Oxford”), and allegedly was assured that the patient was covered by Oxford’s plan, that the plan provided for payment to out-of-network physicians such as Dr. McCulloch, that the plan covered the surgical procedures that Dr. McCulloch would provide for the patient, and that Oxford would reimburse Dr. McCulloch at 70% of UCR (the usual, customary, and reasonable rates for such procedures).

The doctor proceeded with the surgery on the basis of his understanding.  Afterwards, he billed Oxford $15,479.80 for the surgery (i.e., the alleged UCR of $34,024, minus certain deductions and offsets).  Oxford paid $641.66, and also apparently sent McCulloch a reply letter denying coverage.  Continue Reading

Posted in Privilege Issues

Judge Kaplan Finds Claim of Fraud Trumps Attorney-Client Privilege

Without waiver, discovery of bona fide privileged documents is usually a dead end. That principle would seem to be especially rock-solid when those documents are the subject of a subpoena addressed to adversary counsel in related litigation (in this case, to enforce a foreign judgment). But in Chevron v. Donziger, et al., a judgment enforcement action that has been anything but ordinary (here and here), Judge Kaplan ruled that where there is probable cause that the foreign judgment was procured by fraud, and the documents sought relate to that fraud, neither work product protection nor attorney-client privilege applies.   Continue Reading

Posted in Procedure Securities

Judge Sullivan Teaches Apple a Lesson

Activist investor David Einhorn’s hedge fund, Greenlight Capital, withdrew the highly publicized case it brought against Apple alleging that the tech giant tried to ram through a proposal in its annual proxy by “bundling” it with other less controversial proposals. But not before Judge Sullivan gave Greenlight a nice win, and left some important precedents on proxy voting for the rest of us. Continue Reading

Posted in Pleading Procedure Securities

Judge Rakoff on the Edge Act and “Local Prejudices of State Courts”

Investors who lost money in the housing crisis may prefer to have their case heard by a hometown jury in state court, instead of as a federal securities fraud claim. But if their investment included properties outside of the United States, the Edge Act – created after WWI “in order to protect federally chartered banks engaged in international banking from variations in state law and the local prejudices of state and insular courts” – will force their claims into federal court. Continue Reading

Posted in Contract Trials

Judge Rakoff Issues First Verdict Ever For Insurer and Against Bank for Bad Mortgages

Judge Rakoff issued an opinion with significant implications for parties litigating cases involving mortgage backed securities. In Assured Guaranty v. Flagstar Bank, Assured sought to recover some $89 million in insurance claims it paid to bondholders who invested in Flagstar bonds secured by what turned out to be lousy mortgages. When the mortgage market collapsed, the bonds secured by the mortgages also failed, leaving Assured on the hook. Assured claimed that Flagstar breached its contract with Assured by overstating the quality of the mortgages when it asked Assurance to insure the bonds — about 15,000 separate mortgage loans. After a bench trial, Judge Rakoff agreed with Assured and found that Flagstar was liable for the $89 million in insurance claims paid by Assured to bondholders. Judge Rakoff’s opinion is the first ever after trial holding a bank liable for breach of its representations and warranties to its monoline insurer about the quality of the morgages it originated. Continue Reading

Posted in Foreign Awards Pleading

Judge Stein on Saddam, Oil for Food and RICO

In Republic of Iraq v ABB AG, Judge Stein dismisses claims by the current Iraqi government, the Republic of Iraq, against BNP Paribas under RICO for facilitating the corruption of the United Nation’s Oil for Food Program by the Saddam Hussein Regime. The Oil for Food Program was intended to allay the suffering of the Iraqi people caused by worldwide trade sanctions against Iraq after its 1990 invasion of Kuwait. The Program allowed Iraq to sell oil to third parties so long as the proceeds were used to purchase food and medical supplies for the Iraqi population. Under the Program, the proceeds of approved sales were deposited in a UN escrow account at the New York Branch of BNP Paribas. According to the complaint, the Hussein Regime, with the active assistance of the Bank and other defendants, exploited the Program to siphon off millions of dollars in kickbacks for itself and its political allies.

In a fascinating decision, Judge Stein finds the Republic has standing to sue for wrongful depletion of the UN escrow account because the account was held for Iraq’s “proprietary benefit,” and further finds that the Republic’s claims are not barred by either the act of state or political question doctrines. But, after dangling those hopeful signs before the Republic, he then dismisses its case against BNP with prejudice. Continue Reading

Posted in Class Actions Pleading Securities

Judge Scheindlin Keeps Rating Agencies on the Hot Seat (Update on DOJ Filing)

Judge Scheindlin continues to define the law for rating agencies, finding that they don’t have immunity from fraud claims on the ground that their ratings are merely their own opinions, not statements of fact. That’s pretty significant for lawsuits arising out of the subprime mortgage meltdown. Here’s how she nicely sums up the essence of a viable fraud claim against a rating agency in King’s County v. IKB Deutsche Industriebank, which involved a rating for a structured investment vehicle made up of bad mortgages: “To sustain a fraud claim against each rating agency, then, plaintiffs must provide evidence that the rating agency issued a rating that it knew was unsupported by facts or analysis – that the rating agency did the equivalent of issuing a restaurant review despite never having dined at the restaurant.”

In denying motions by the rating agencies for summary judgment, Judge Scheindlin addresses each of the elements of a fraud claim against a rating agency. First, she finds that when “a rating agency issues a rating, it is not merely a statement of that agency’s unsupported belief, but rather a statement that the rating agency has … reached a fact based conclusion as to creditworthiness.” Next she finds that a jury can infer scienter, or intent to defraud investors, based on evidence that an agency issued a rating it knew was inaccurate, and that a plaintiff’s testimony is enough on its own to establish “reliance” on the rating. She also finds that reliance on the rating agencies can be reasonable where the agencies had access to information not available to investors, and the investments rated were “the most opaque structured credit vehicles and transactions on the market.” Continue Reading

Posted in Pleading Procedure

Judge Crotty on Foreign Entanglements

Yulia Tymoshenko is the former prime minister of the Ukraine, and was one its most successful businesswomen, reportedly making a fortune in the natural gas industry. Today, however, she is serving a seven year prison sentence in the Ukraine for abuse of power and for working against the Ukraine’s interests while in office by agreeing to buy natural gas from Russia at inflated prices. Her supporters claim the sentence resulted from an unfair trial, and Tymoshenko has challenged her conviction in the European Court of Human Rights. (Here is a brief news summary of Tymoshenko’s political fights and present situation from Times Topics.) 

But business moves on. In a case involving the scope of personal jurisdiction over foreign parties, Universal Trading v. Tymoshenko, Judge Crotty found that the New York courts did not have personal jurisdiction over Tymoshenko, and dismissed an action to enforce a $18.3 million judgment against her that stemmed from a mid-1990s commercial dispute in the Ukraine. Continue Reading

Posted in Class Actions Pleading

Judge Scheindlin on Watching Sports

Even an avid sports fan might reasonably believe that there’s no shortage of sports programming on television. But according to Judge Scheindlin in Laumann v. National Hockey League, predatory practices by the National Hockey League and Major League Baseball, and television providers, may be restricting choice and pushing up the cost of watching our favorite teams.

TV subscribers sued their cable and satellite television providers, the NHL, the MLB, and regional sport networks (like YES, or MSG). They claim that those defendants agreed to divide the market for hockey and baseball broadcasts so that subscribers in one region usually can only watch their local team. The only way a subscriber can watch all the games of a favorite team that plays in another region is by buying an expensive “all league games” package. So, if you live in New York but root for the San Francisco Giants, you are blacked out from Giants games unless you buy a television or internet package that includes the games of every other team outside of New York. Without these agreements the regional network that produces the Giants, for example, might decide to compete against the local Yankee broadcasts, or vice-versa – which could be good for sports fans.  Continue Reading

Posted in Derivative Claims Pleading

Judge Engelmayer Shoots Down a Starr

Starr International, a shareholder of AIG, is run by AIG’s former leader, Hank Greenberg. In Starr Intern’l v. Federal Reserve Bank of New York, Judge Engelmayer takes on Starr’s charge that the FRBNY ran roughshod over AIG’s shareholders when it bailed out AIG during the 2008 financial crisis. Judge Engelmayer describes Starr’s complaint as painting “a portrait of government treachery worthy of an Oliver Stone movie.” But like much of Oliver Stone’s work, the Judge found the complaint contains more imagination than fact.

According to Starr, the FRBNY exploited its financial rescue of AIG to create “a backdoor bailout” of other banks. In particular, the FRBNY required AIG to satisfy its outstanding credit default swap contracts (insurance that AIG provided to banks for the banks’ disastrous subprime mortgage loans) on “terms needlessly detrimental to AIG.” The complaint also alleges that the FRBNY circumvented Delaware law anti-dilution provisions by grabbing 80 per cent of AIG’s common stock. Because the FRBNY was alleged to have “de facto” control of AIG by reason of its rescue package, Starr alleged it “stood in a fiduciary relationship to AIG’s other shareholders…,” and had to act in the shareholders’ interests.  Continue Reading