A daily look at legal news and the business of law:
Big Case No. 1: Billionaire Blavatnick v. JPMorgan Chase
Billionaire Len Blavatnick is suing JPMorgan Chase for losing some $100 million of his money by investing it in subprime mortgages and otherwise giving him lousy advice. Part of his suit as been allowed to go forward, the part that says JPMorgan (JPM) violated agreed-upon guidelines that allowed it to put up to 20% of the billionaire's money in mortgage-backed securities. The billionaire points out that in addition to putting 20% of his money into "mortgage-backed securities," the bank put an additional 20% into second-mortgage backed securities -- er, home equity loan-backed securities -- which the bank insists are "asset backed securities," not "mortgage backed securities", and thus didn't violate the guidelines.
That is a semantics war made for lawyers, and as Joe Nocera's New York Times write up notes, both sides can afford as many lawyers as it takes to win the word war. At some level, of course, JP Morgan's argument seems absurd: All mortgage-backed securities, whether they are backed by first or second mortgages, are "asset-backed," the asset being the house. To distinguish between asset-backed and mortgage-backed surely seems -- to a lay person at least -- to suggest an underlying asset that isn't a house. Of course, that commonsense take isn't enough to be persuasive to bankers, or Blavatnick and JPMorgan wouldn't be facing a trial over whether the bank violated the guidelines.
Big Case No. 2: Norway v. Citigroup
Norway's oil has made it a very rich country, and Norway has shepherded that wealth on behalf of its citizens by investing it through a sovereign wealth fund intended to help the country meet its increasing public pension obligations and support the long term management of its oil reserves. In 2007, the fund began investing in Citigroup (C) at what the fund now alleges were inflated prices buoyed by Citigroup's misrepresentations of its financial condition, resulting in $835 million in losses. To recover those losses, Norway has sued Citigroup, both on its own and as a member of a class action making similar charges, reports Bloomberg. This suit may be one of many Norway files in the coming months, given that, according to Bloomberg, its mega losses in 2008 -- $108 billion -- wiped out all of the $459 billion fund's gains since its 1996 inception.
Separately, Citigroup can put a different big-plaintiff suit behind it: the Securities and Exchange Commission's case. The judge who expressed doubt about Citi's proposed settlement with the SEC has indicated she will now sign off on it, as soon as it's amended to include some internal oversight reforms Citi voluntarily adopted. The judge noted she wanted to be sure Citi couldn't unilaterally decide to drop those reforms, reported The Wall Street Journal.
Judicial Ethics And Elections
When a judge has the appearance of a conflict of interest or bias in a case before her, she is supposed to recuse herself lest her decision appear tainted. For example, U.S. Supreme Court Justice Stevens recused himself from a case involving Florida property rights because he owned property in Florida. Fundamentally, cases are supposed to be decided on the merits presented to the judge in the context of the case, and nothing else. "Pre-judging" an issue by making up one's mind before hearing the case, is an extreme version of the problem recusal is meant to solve. And that's what's happening in West Virginia right now: A judge who made a campaign promise, er, pledge, to vote a certain way on an issue, is now facing that exact issue and refusing to recuse himself.
When running for election, West Virginia Supreme Court Justice Menis Ketchum said, regarding the state's medical malpractice damages cap, "I will not vote to overturn it, I will not vote to change it. I will not vote to modify it." Now, a case that directly challenges that cap has come before the Court, meaning the justices will be deciding whether or not to overturn, change, or modify the cap, Justice Ketchum has refused to recuse himself, reports the Blog of the Legal Times. Rather than deny he made the pledge, Ketchum issued a statement defending his decision: "While I am predisposed to do just what I said during my campaign -- that I will not vote to overturn, change or otherwise modify the [malpractice damages] caps -- as a jurist I am required to look at all issues from a different perspective than I enjoyed as Lawyer Ketchum."
Ketchum's decision isn't the first controversial recusal refusal by a West Virginia Supreme Court justice. The first involved Justice Brent Benjamin, whose judicial campaign was heavily funded by Massey Coal, and who, after refusing to recuse himself, cast the tie-breaking vote in Massey Coal's favor in a major case. That recusal refusal was litigated up to the U.S. Supreme Court, which ruled Benjamin should have recused himself. We'll see if Ketchum's case takes that route too.
In other judicial election news, conservative groups are spending heavily on election campaigns to oust judges whose opinions they disagree with, reports The New York Times. Particularly but not uniquely targeted are three of the seven Iowa judges who unanimously decided bans against gay marriage were unconstitutional in that state. Depending on one's view of the judiciary, that can be seen as a good thing. Personally it's a nightmare to me: I don't want judges making decisions in the shadow of an election -- they should be making decisions purely on the facts of the case before them, the federal and relevant state constitutions, and the relevant law.