Compass Lexecon has been involved in many of the largest and most complex antitrust litigation and financial market cases over the past thirty years. Details of recent cases in which Compass Lexecon has been involved are provided below or can be located by using the Search Bar capability.
Representative Cases View Snapshot of Cases by Year
Compass Lexecon Senior Advisor Dr. Jonathan Arnold Testifies Successfully for Plaintiffs
This case involved a multi-year Ponzi-like scheme to siphon funds from life insurance companies and bank trust accounts established to fund funeral services purchased in advance of death. Compass Lexecon was retained by plaintiffs, which included life and health guarantee associations in three dozen states, as well as the Special Deputy Receiver for two life insurance companies and National Prearranged Services, Inc. Defendants in the case were multiple banks who allegedly breached their fiduciary duties as trustees of the trusts at issue by failing to properly monitor and control trust assets (a number of other parties were also sued).
The case went to trial in February against PNC Bank, which was not involved in the wrongdoing but was successor-in-interest to Allegiant Bank (which served as trustee from 1998 through 2004), and another (non-bank) party. Other parties, including other banks, settled prior to trial.
Jonathan Arnold, Senior Advisor to Compass Lexecon filed multiple reports and testified at trial that the economic losses caused by Allegiant Bank totaled $355.5 million. After a five week trial, and two days of deliberations, the jury found liability and awarded Dr. Arnold's $355.5 million damages figure to the plaintiffs against PNC Bank, plus an additional $35 million in punitive damages. The jury awarded damages of $100 million against the other remaining defendant.
Dr. Arnold worked with Compass Lexecon's President, Professor Daniel Fischel on the case and was also supported by a team in the Chicago office that included Neal Lenhoff, Andria van der Merwe, Ron Laschever and James Connolly, among others. The team worked closely with lead trial counsel Dan Reilly and Larry Pozner of the Reilly Pozner law firm who successfully represented plaintiffs. We also worked with other attorneys from that firm including Wendy Fisher, Clare Pennington and Glenn Roper, as well as with co-counsel Chris Fuller of The Fuller Law Group.
Compass Lexecon was retained by counsel for Bank of New York Mellon (“BNYM”) as Trustee to evaluate a proposed $8.5 billion settlement between 530 Trusts and Bank of America. The Trusts had purchased mortgage backed securities from Countrywide prior to its acquisition by Bank of America. After the securities performed worse than expected, a group of institutional investors and Bank of America, with assistance from BNYM, negotiated a proposed settlement whereby Bank of America would pay $8.5 billion to the Trusts as well as agree to certain servicing improvements and other remedies. The New York State Supreme Court was then asked to approve the settlement. Numerous investors in the 530 Trusts lodged objections claiming the settlement was unfair and that BNYM was conflicted and acted in bad faith in negotiating and agreeing to the settlement.
Compass Lexecon’s President Professor Daniel Fischel filed multiple reports and testified at the several months long hearing that the settlement was fair and reasonable. He showed that the lack of any conflict, the substantial uncertainty about the value of the claims, the questionable ability to recover in litigation given the substantial Countrywide bankruptcy risk, and the reaction of market participants to the proposed settlement supported its fairness. Compass Lexecon’s new affiliate, Professor Robert Daines, also testified. He explained among other things that the Trusts would be unlikely to recover from Bank of America on a successor liability or other theory if the settlement was rejected. Justice Barbara Kapnick found that BNYM acted in good faith and approved all aspects of the settlement except for the release of one claim. Justice Kapnick’s decision was appealed to the Appellate Division of the New York State Supreme Court. In a unanimous decision, the appellate court found that the Trustee did not abuse its discretion and approved the settlement in its entirety.
Professor Fischel was supported by a team in Compass Lexecon's Chicago office which included Jerry Lumer, Jessica Mandel, Mike Keable, Kevin Hartt, Donnie Hong, and many others. The team worked closely with Matt Ingber and Chris Houpt of Mayer Brown and Hector Gonzalez and Mauricio España of Dechert LLP who successfully represented BNYM.
Professor Bradford Cornell recently testified in a high-stakes trial involving Johnson & Johnson’s lawsuit against Guidant Corporation. In the lawsuit, Johnson & Johnson accused Guidant of breaching terms in a merger agreement between the two companies when another firm, Boston Scientific, emerged as a competitive bidder for and ultimately acquired Guidant. Johnson & Johnson claimed that the alleged breach caused over $7 billion in damages because it was unable to acquire Guidant at the price specified in the agreement.
Professor Cornell testified that Johnson & Johnson’s estimate of damage was unreliable. For example, one of Johnson & Johnson’s damage theories claimed that but-for the breach it would have acquired Guidant at the price specified in the agreement and would have received its estimated investment value that included expected merger-related synergies. Professor Cornell explained that Johnson & Johnson’s ability to acquire Guidant at the price specified in the agreement was not reasonably certain given the emergence of a higher unsolicited bid from Boston Scientific. He also pointed out that Johnson & Johnson’s estimates of investment value were highly sensitive to modeling assumptions and that expected merger-related synergies often do not materialize.
While awaiting the Court’s decision, the case settled on favorable terms. After the settlement announcement, Boston Scientific’s stock price closed at $16.68, an increase of over 12% from the previous day’s close. Compass Lexecon worked with John Gueli and Daniel Laguardia of Shearman & Sterling and William Ohlemeyer and Jack Wilson of Boies Schiller & Flexner. Professor Cornell was supported by Andrew Roper, John Haut, and Keming Liang.
This was a stockholder class action against certain members of the board (the “Board”) of Jefferies Group, Inc. (“Jefferies”) and Leucadia National Corporation (“Leucadia”). Plaintiffs alleged that four conflicted members of the Jefferies Board breached their fiduciary duties while negotiating the sale of Jefferies to Leucadia to secure a deal which favored their own interests to the detriment of public shareholders, and that Leucadia aided and abetted those breaches. Dan Fischel and Kevin Dages were retained as expert witnesses by the Defendants. The case settled after expert reports were submitted and Dages was deposed. Fischel & Dages were supported by George Hickey, Tim McAnally, Jonathan Polonsky, and David Ross in Compass Lexecon’s Chicago office. The Defendants were represented by Joseph Allerhand and Seth Goodchild at Weil, Gotshal & Manges LLP; Collins J. Seitz, Jr., Bradley R. Aronstam and Anthony Rickey at Seitz Ross Aronstam & Moritz LLP; Brian A. Herman at Morgan, Lewis & Bockius LLP; Gregory Varallo, Richard Rollo and Kevin Gallagher at Richards, Layton & Finger, P.A.; William Savitt and Bradley R. Wilson at Wachtell, Lipton, Rosen & Katz; and William Lafferty and D. McKinley Measley at Morris, Nichols, Arsht & Tunnell LLP.
Pan American Energy LLC v. Plurinational State of Bolivia (ICSID Case ARB/10/8)
Pan American Energy LLC retained Dr. Manuel A. Abdala and Professor Pablo T. Spiller to provide expert advice and testimony on the economic impact of several measures affecting its investments in Empresa Petrolera Chaco S.A. in Bolivia. These measures included regulatory changes stemming from legislation issued back in 2006, and which ultimately included changes to price regulations, increases in royalties and eventually the expropriation of its 50% ownership (which the Government transferred to YPFB’s, Bolivia's state-run oil and gas company). The Compass Lexecon team performed valuation, regulatory and damages analyses in a context of evolving regulatory, taxation and product market conditions. A settlement was signed in December 2014 allowing Pan American to recover US$357 million, this is said to be the highest Bolivia has ever agreed to with a foreign investor.
Manuel Abdala and Pablo Spiller were assisted by a team led by Carla Chavich and Ariel Medvedeff of Compass Lexecon’s New York and Buenos Aires offices, respectively. Other team members included Marcelo Schoeters, Daniela Bambaci, Gustavo De Marco, and Luisa Foster. Compass Lexecon worked closely with Nigel Blackaby and Noiana Marigo of Freshfields Bruckhaus Deringer LLP.
In this case, nine foreign ocean carriers challenged a user fee provision that was instituted by the Port Authority of New York and New Jersey in 2011 to recoup the costs of an on dock rail system and various other expenditures. Compass Lexecon was retained by Richard Rothman and Peter Isakoff of Weil, Gotshal & Manges LLP on behalf of their client, the Port Authority, to analyze the economic effects of the user fee. Compass Lexecon economists Rick Flyer and Allan Shampine then drafted a report which concluded that the complaining parties did in fact benefit from the projects including the rail system related to the user fee. Ultimately, the Federal Maritime Commission unanimously affirmed an earlier decision by an Administrative Law Judge in favor of the Port Authority and upheld the user fee.
This matter involved a stockholder class and derivative action against certain current and former members of the Board of Directors (the “Board”) of Activision Blizzard, Inc. (“Activision” or the “Company”) , Activision’s former majority stockholder Vivendi S.A. (“Vivendi”), and certain investment vehicles, ASAC II LP (“ASAC”) and ASAC II LLC (“ASAC GP”), created by the Company’s long-time Chief Executive Officer and Director, Robert A. Kotick, and the Company’s Co-Chairman, Brian G. Kelly, concerning Activision’s repurchase of shares from Vivendi and sale of shares to ASAC. Plaintiffs alleged that Defendants abused their authority and made improper threats in aid of an $8.2 billion transaction that served their mutual interests but deprived Activision’s stockholders of the valuable opportunity to repurchase control of the Company and deprived Activision of wealth that Kotick and Kelly captured for themselves. Compass Lexecon President Professor Daniel Fischel was retained as an expert witness by all of the defendants; Compass Lexecon affiliate Professor Kenneth Lehn was retained as an expert by Vivendi, and Compass Lexecon Senior Consultant Professor Bradford Cornell was retained as a rebuttal expert by Kotick and Kelly. Vivendi was represented by Michael Farhang and others of Gibson, Dunn & Crutcher LLP; the ASAC defendants were represented by Bob Sacks, Bill Wagener, and Diane McGimsey of Sullivan & Cromwell LLP; Activision was represented by Ed Welch, Ed Michelleti and others of Skadden, Arps, Slate, Meagher & Flom LLP; and the Special Committee was represented by Bill Savitt and others of Wachtell, Lipton, Rosen & Katz. The parties entered into a settlement agreement after expert depositions were completed and prior to trial. Professor Fischel was supported by David Ross, Jonathan Polonsky and others in our Chicago office. Professor Lehn was supported by Ralph Scholten in our DC office, and Rahul Sekhar and others in our Chicago office. Professor Cornell was supported by Peter Clayburgh, James Tam, May Huang and others in our Pasadena office.
In April and May 2014, Valeant made various proposals to acquire Allergan and in June 2014 Valeant launched a tender offer. Entities related to Pershing Square and Valeant purchased approximately 10 percent of the outstanding shares of Valeant prior to the public announcement of various takeover proposals. Allergan subsequently accused Pershing Square of violating Rule 14e-3 of the federal securities laws by trading while in possession of material non-public information about a tender offer after Valeant had taken substantial steps towards launching the Tender Offer. Allergan sought an injunction that would have prevented Valeant and Pershing Square from voting its shares and proxies, preventing the proposed transaction from moving forward. Compass Lexecon affiliate Professor Robert Daines submitted an expert declaration and testified at deposition that the activities undertaken by Valeant and Pershing square did not establish that Valeant’s unsolicited merger proposal was a pretense in advance of a hostile tender offer. On November 4, 2014, Judge Carter of the U.S. District Court for the Central District of California Southern Division Santa Ana denied plaintiffs’ motion to enjoin Valeant and Pershing Square from voting its shares and proxies at the Allergan shareholder meeting. Professor Daines was supported by a Compass Lexecon team including David Gross, Jonathan Polonsky and David Strahlberg. We worked closely with counsel from Kirkland & Ellis, representing Pershing Square, including John Del Monaco and Michael Shipley, and from Sullivan & Cromwell, representing Valeant, including Brian Frawley and Edward Johnson.
Australian Competition and Consumer Commission v. Air New Zealand Limited
The Australian Competition and Consumer Commission (“ACCC”) alleged that Air New Zealand colluded with other airlines to fix surcharges and fees on the carriage of air cargo from Hong Kong and Singapore to Australia. Justice Perram of the Federal Court of Australia dismissed the case, finding the markets at issue were outside of Australia. In dismissing the charges, Justice Perram relied upon the testimony of Professor Richard Gilbert of Compass Lexecon.
The ACCC brought suit under the Trade Practices Act of 1974, which covers only conduct that takes place in a market in Australia. Thus, a key issue in the litigation was the question of the location of the markets for air cargo services to Australia for cargo originating outside of Australia. The ACCC’s economic experts claimed that the markets for air cargo destined for Australia encompasses Australia because the demand for goods delivered by air cargo was located in Australia and decisions regarding which air carrier to use were sometimes made in Australia, among other reasons.
Air New Zealand retained Professor Richard Gilbert and Compass Lexecon to address the geographic location of markets for air cargo. Professor Gilbert opined that the appropriate method for determining the location of a market was to identify the boundaries of the relevant geographic market. Moreover, relevant market analysis shows the connections to Australia that the ACCC’s experts highlighted do not imply that the market for air cargo services to Australia encompasses Australia. Instead, the competition among air carriers to provide transportation to Australia takes place overseas because the competing alternatives to transport cargo from points overseas to Australia are located overseas.
Relying on Professor Gilbert’s testimony, the Court found that to the extent there were agreements regarding fuel surcharges, they occurred in markets outside of Australia. Notably, Air New Zealand and Garuda were the only two airlines to take the ACCC to trial on these issues. Other airlines reached settlements with the ACCC and paid fines totaling $98.5 million (AUD).
Professor Gilbert was assisted by a team in Compass Lexecon’s Boston office led by Steven Peterson. Compass Lexecon worked closely with Michelle Carr of Corrs Chambers Westgarth.
Morgan Stanley and Van Kampen served as investment advisors to various closed-end municipal and taxable bond funds. In order to generate leverage, the funds issued auction rate preferred securities (ARPS). In February 2008, the downgrades of monoline bond insurers and other ripple effects of the financial crisis resulted in a virtual freeze in the ARPS market, thereby eliminating liquidity for investors in ARPS. The funds decided to redeem a percentage of their ARPS at par and replace the leverage with other types of financing (notably, tender option bonds). Classes of common stock shareholders in the funds sued Morgan Stanley Investment Advisors Inc., Van Kampen Asset Management, and others in shareholder derivative actions, and the boards of directors of the funds appointed special litigation committees (SLCs) in order to determine whether to support the derivative litigation. Defendants engaged Compass Lexecon Affiliate, Professor Christopher Culp, along with a team in our Chicago office led by David Gross and Laura Yergesheva, to analyze the ARPS market and to determine whether shareholders were damaged by the boards’ decisions to redeem ARPS. In particular, Professor Culp and his team analyzed Plaintiffs claims that tender option bond financing was costlier and riskier than ARPS, and that the funds’ at-par redemptions of ARPS were inappropriate. Professor Culp concluded that the common shareholders of the Funds did not suffer any damages as a result of the refinancing of ARPS with tender option bonds; that both the cost and risk of tender option bond financing and ARPS financing for the funds are comparable; and the Funds made a reasonable decision to redeem ARPS at par. Both SLCs extensively cited Professor Culp’s expert reports and concluded that it was not in the funds’ best interest to support the derivative litigation. The Supreme Court of the State of New York, County of New York dismissed the derivative litigation, citing Professor Culp’s expert reports and the reports of the SLCs. Judge Marcy Friedman wrote that “Plaintiffs have failed to rebut the trusts' showing and to demonstrate that the independent trustees' determinations were not made in good faith after reasonable inquiry...The decision of disinterested trustees, based on a comprehensive report of a disinterested special litigation committee, is protected by the business judgment rule.” We were retained in this matter by Richard Rosen and others at Paul, Weiss, Rifkind, Wharton & Garrison LLP who successfully represented defendants.
Compass Lexecon was retained by the Barbados-based Consolidated Energy Limited (CEL) to provide expert testimony in its shareholder dispute against its former partners, CLICO and CL Financial (CLF), regarding the value and control of MHTL, one of the largest worldwide methanol and UAN companies based in Trinidad and Tobago.
The shareholder dispute has its origin in early 2009 when, as a result of the financial crisis, CLICO and CLF were rescued by the Government of Trinidad and Tobago, taking control of their combined 56.53% shares in MHTL as part of a bailout process. CEL has since claimed that its partners had failed to respect its rights of first refusal and that the Government’s presence in MHTL’s board had negatively affected MHTL’s performance. In a March 2013 ruling, an International Chamber of Commerce (ICC) Tribunal found that CLICO and CLF engaged in a conduct qualified as oppression, by unfairly disregarding CEL’s reasonable expectation that MHTL would remain a company privately owned for commercial profit. In a subsequent November 2013 decision, the Tribunal ruled that the remedy to end oppression was for Respondents to negotiate and complete the terms of a transfer of their 56.53% stake in MHTL to CEL, by no later than January 2014. In this ruling, the Tribunal followed Dr. Abdala’s recommendation that the valuation of the shares ought to be based under the criteria of Fair Market Value, including a discount for illiquidity due to, among other factors, the restrictive exit conditions of the Shareholders Agreement. Because the parties failed to agree on a transaction price by January 2014, a final hearing was held in May 2014 to help the Tribunal rule on the fair market value of MHTL’s 56.53% equity stake.
Respondent’s CLICO and CLF presented witness and expert evidence from three valuation teams, Deloitte (London), Duff & Phelps (New York) and UBS (New York). Their opinion included three valuation methods: DCF, relative multiples and replacement cost value, finding MHTL’s 56.53% value to range between US$1.6 to US$2.2 billion. The Tribunal endorsed Dr. Abdala’s view that the DCF was the only method that could be relied, for this case, to assess fair market value, and set the transaction price at US$ 1.175 billion. In October 9, 2014 CEL acquired the 56.53% stake at the price set by the Tribunal, becoming the sole owner of MHTL and effectively putting an end to the oppression claim.
Compass Lexecon’s expert Manuel A. Abdala led this engagement supported by Sebastian Zuccon, Daniela Bambaci, Alan Rozenberg, Maria Agustina Gallo and Carlo Tanghetti. Professor Pablo T. Spiller acted as co-expert with Dr. Abdala in the early phase of the dispute. The team worked with Jeff Chambers, Eileen O’ Neill, Tim Lankau, Michelle Meriam and Don Jackson of Ware Jackson Lee & Chambers LLP, counsel for CEL.
On October 3, 2014, Judge Richard Seeborg of the U.S. District Court for the Northern District of California issued an order denying class certification in a matter involving alleged price fixing by manufacturers of optical disk drives (“ODDs”), which include CDs, DVDs and Blu-Ray ODDs. Two groups of plaintiffs, direct purchaser plaintiffs (“DPPs”) and indirect purchaser plaintiffs (“IPPs”), submitted economic expert reports in support of their motions for class certification. Compass Lexecon Senior Consultant Professor Janusz Ordover submitted an expert report in support of defendants’ opposition to class certification, which identified several fundamental flaws in the analyses and conclusions of plaintiffs’ experts. Judge Seeborg agreed with Dr. Ordover’s opinions, concluding that neither group of plaintiffs “have presented a viable methodology for establishing class-wide antitrust injury and damages.” Judge Seeborg concluded that the flaws identified by Dr. Ordover fatally undermined the analysis and conclusions of plaintiffs’ experts. For instance:
- Judge Seeborg concluded that the correlation analyses presented by plaintiffs’ experts—which attempted to show that if defendants’ conduct impacted ODD prices for some customers and ODD products, the sale of all ODD products to all members of the purported classes would have been impacted—were unpersuasive, pointing to “defendants’ evidence that such correlations would exist in any event in the steadily declining prices that befell the ODD industry during the relevant period.”
- Judge Seeborg also agreed with Dr. Ordover’s opinion that the regression model offered by DPP’s expert to demonstrate class-wide impact simply “assumes the very proposition that the DPPs are now offering it, in part, to show”—the existence of class-wide impact— because the regression model used a single overcharge “dummy” variable and therefore assumed that the alleged conspiratorial overcharge was the same for all purchasers, all ODD product types, and all relevant time periods. Similarly, Judge Seeborg found that the regression model put forth by IPP’s expert, “is more complex” but his alleged conspiratorial overcharge estimates nevertheless “reflect aggregate estimates for all purchasers purchasing ODDs of particular types in given years.” As a result, the judge concluded that “class-wide impact is still being assumed by the models, rather than demonstrated by the results” and, thus, the regression methodology used by plaintiffs’ experts could not “serve to establish that all (or nearly all) members of the class suffered damage as a result of defendants’ alleged anti-competitive conduct.”
- Judge Seeborg also cited Dr. Ordover’s empirical analysis that contradicted the claim of DPPs’ expert that MFN clauses in Dell and Hewlett Packard (“HP”) procurement contracts would have led to class-wide impact. In particular, the judge found that “among other things, the empirical data shows that prices charged to other customers did not cluster within an especially narrow range above the supposed ‘floor’ of the prices paid by Dell and HP.”
Dr. Ordover was supported by a Compass Lexecon team led by Andres Lerner and Emmett Dacey in Compass Lexecon’s Century City office. The Compass Lexecon team also included Aren Megerdichian, Janin Wimer, Joshua Waller, Joel Moore, and Robert Oandasan. The Compass Lexecon team worked closely with counsel representing the defendants, including Ian Simmons of O’Melveny & Myers and Daniel Wall and Belinda Lee of Latham & Watkins. The defense team also included Mark Popofsky (Ropes & Gray), Jeffrey Kessler, George Mastoris, and Matthew DalSanto (Winston & Strawn), Nathan Eimer (EimerStahl), John Cove and Kieran Ringgenberg (Boies, Schiller & Flexner), Charles Loughlin and Evan Werbel (Baker Botts), David Bamberger (DLA Piper), Joel Kleinman (Dickstein Shapiro), and Jason Levine (Vinson & Elkins).
In a total victory for defendants in the first shareholder class action brought in New Zealand, the High Court ruled in this case that the IPO prospectus for Feltex Carpets Limited did not contain any material misstatements or omissions. The representative plaintiff had accused the defendants of making numerous material misstatements and omissions in Feltex's prospectus, which allegedly resulted in its IPO taking place in early June 2004 at a significantly inflated price and caused substantial shareholder losses. Compass Lexecon Senior Consultant Professor Bradford Cornell was retained by the defendants (Feltex's selling shareholder and IPO promoter, Credit Suisse; joint lead managers First NZ Capital and Forsyth Barr; and Feltex's management team) to analyze loss causation and damages. In his trial testimony, Professor Cornell explained that shareholder losses caused by misstatements and omissions in a prospectus can be measured by examining the difference between the offering price of the stock in question and the price at which the stock would have traded if those misstatements and omissions were fully disclosed. Professor Cornell concluded that there was no significant share price reaction when certain alleged misrepresentations were disclosed, demonstrating that there was no sound economic basis to conclude that these alleged misrepresentations had a material effect on Feltex's IPO price. In arriving at findings that may have widespread implications for future securities class actions brought in New Zealand, the High Court agreed with Professor Cornell, stating: "As Professor Cornell emphasized, the lack of reaction in terms of the share price at that time tends to confirm that the difference was not material." The High Court also favorably cited Professor Cornell's testimony on measuring loss, noted that the plaintiff did not provide any rebuttal testimony, and rejected the plaintiff's alternative theory of full recovery of the price paid for Feltex shares in the IPO. Professor Cornell was supported by John Haut, Peter Clayburgh, Eric Madsen, Shawn Chen, and others from Compass Lexecon's Pasadena office. We worked with Adrian Olney and Chris Curran of Russell McVeagh and David Cooper of Bell Gully.
Plaintiffs in this case accused Simon Property Group of improperly awarding one million Long Term Incentive Performance (“LTIP”) units without shareholder approval. The company canceled the original award and issued an amended LTIP grant where the vesting of the LTIP units was conditional on certain performance hurdles being reached. Plaintiffs’ counsel then moved for fees to be awarded based upon an expert’s analysis of the difference in value between the original award and the amended award.
Compass Lexecon and Affiliate Harvard Professor Allen Ferrell were retained by the defendant to analyze the value differential between the original LTIP grant and the amended LTIP grant. Professor Ferrell opined that the Plaintiffs’ expert failed to use the proper metric to model the vesting conditions, and also inappropriately raised the volatility of the inputs by limiting his analysis to the post-financial crisis period, rather than looking at the volatility over a longer time period. As a result Professor Ferrell was able to demonstrate that Plaintiffs’ expert overstated the true value saved by the amended award. Based upon the analysis conducted by Professor Ferrell, the Court found that “plaintiffs’ expert made erroneous assumptions and used incorrect information in his calculations.” The Court went on to award fees based upon the calculations of Professor Ferrell, ultimately awarding Plaintiffs’ counsel fees that were approximately 10% of those fees initially demanded.
Compass Lexecon worked with Dan Leffell of Paul, Weiss, Rifkind, Wharton & Garrison. Professor Ferrell was supported by Alex Rinaudo and Tristam Worth of Compass Lexecon’s New York office.
Plaintiffs sought to represent a class of investors who purchased common stock in China Integrated Energy between March 31, 2010 and April 21, 2011. A federal court denied Plaintiffs' motion to certify a class holding that Plaintiffs had not established a rebuttal presumption of reliance. As part of the order, the court excluded the testimony of two Plaintiffs experts. The ruling was a complete Defense victory, marking a rare but successful challenge to class certification in federal securities class actions.
Plaintiffs in this case asserted claims against China Integrated Energy, some of its officers and directors, and its independent auditor based on alleged violations of federal securities laws, including Section 10 and Rule 10b-5. Plaintiffs alleged that China Integrated Energy overstated its revenue and net income in its reported financial results. Plaintiffs also claimed that Defendants prepared two sets of financial statements – an accurate set filed with Chinese regulators, and a false and misleading set filed with the U.S. Securities Exchange Commission. Plaintiffs further asserted that they were entitled to a rebuttable presumption of reliance based on the "fraud-on-the-market" theory and their assertion that China Integrated Energy traded in an efficient market.
In support of their assertion of market efficiency, Plaintiffs proffered two experts. These experts conducted analyses that they referred to as event studies, concluding their analyses demonstrated the requisite cause-and-effect relation. Both experts opined that the existence of statistically significant price reactions on certain (but not all) hand-selected event days indicated market efficiency.
Compass Lexecon's Dr. Andrew (Drew) Roper, the Head of our new Silicon Valley office, was retained by the Defendants to consider whether Plaintiffs experts' opinions relied on commonly accepted economic methods. Dr. Roper testified that Plaintiffs experts' analyses did not meet the requisite standard and were fundamentally flawed for three reasons:
(1) their selection of events (releases of unexpected information) was entirely subjective;
(2) they failed to utilize a pre-specified threshold or known rejection rate; and
(3) they failed to address contradictory evidence.
U.S. District Court Judge Beverly Reid O'Connell agreed with Defendants and Dr. Roper and denied without prejudice Plaintiffs' motion to certify the class. In so doing, the Court cited Dr. Roper favorably:
"From his background and experience, it is evident to the Court that Roper is well qualified to opine on event studies, market efficiency, and the proper methods for conducting an event study."
Defendants were successfully represented in the case by Peter Buckley, Joshua Horn, Christine Soares and others at Fox Rothschild LLP, and Eugene Licker and others from Loeb & Loeb LLP.
The Securities and Exchange Commission in this case accused Manouchehr Moshayedi, a founder of storage device maker STEC Inc., of insider trading when he and his family sold $267 million worth of shares in a secondary offering in August 2009. A federal court jury last Friday ruled against the SEC, finding no liability and rendering a complete victory for the defendant.
In July 2009, STEC Inc. announced a $120 million volume agreement with its largest customer for the second half of the year. The SEC alleged that this announcement and later statements by Mr. Moshayedi misled the market into thinking such agreements would be "recurring" into 2010. The SEC also alleged that approximately three weeks later, Mr. Moshayedi knew that this customer would not need all of that inventory, and entered into a secret side deal to ensure that the customer took $55 million of the $120 million in the third quarter, in order to ensure that STEC's Q3 guidance would meet Analyst's expectations.
The SEC's expert analyzed the stock price reaction on the date of the volume agreement, and opined that Analysts' reactions showed that they expected such volume agreements to be recurring. He also analyzed a date several months later when the SEC says the market learned that STEC's customer might carry excess inventory at the end of 2009 and opined that the entire stock price drop on that date was attributable to this news.
Compass Lexecon and our affiliate Harvard Professor Allen Ferrell were retained by the defendant to analyze the SEC's allegations and rebut the SEC's expert. Prof. Ferrell opined that the SEC's expert failed to properly analyze the impact of the announcement, and performed a sensitivity analysis on the range of stock price reaction attributable to a belief that the volume agreement was "recurring." He also opined that the SEC's expert had ignored confounding information on the date of the alleged corrective disclosure, making his analysis of materiality unreliable. Finally, Prof. Ferrell calculated the probable reaction to "perfect information" about future demand, and showed that the maximum impact on STEC Inc.'s stock price would have been far less than the SEC was seeking in punishment. After Prof. Ferrell submitted an expert report and testified by deposition, the SEC did not even call its expert to the stand during trial.
Compass Lexecon worked with Patrick Gibbs, Matthew Rawlinson & Colleen Smith of Latham & Watkins and Thomas Zaccaro and Howard Privette II of Paul Hastings, who successfully represented defendant at trial. Professor Ferrell was supported by team in Compass Lexecon's Pasadena office led by Elisabeth A. Browne and John Haut.
Compass Lexecon's President Professor Daniel R. Fischel Testifies at Trial
This case involved a lawsuit brought by Harman Corporation and its CEO Hugh Caperton ("Plaintiffs") against A.T. Massey Coal, Inc. ("Massey" now owned by Alpha Natural Resources) ("Defendant"). Plaintiffs accused Massey of tortious interference and fraudulent actions which allegedly rendered Plaintiffs unable to continue in the business of mining and selling coal, caused them to lose their assets and all the profits they would have earned from 1998 to 2008, and caused them to eventually become insolvent. Plaintiffs and their experts claimed Plaintiffs suffered over $100 million in projected lost profits. Plaintiffs also sought other damages including unspecified punitive damages. Defendant's counsel, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., retained Compass Lexecon and its President, Professor Daniel Fischel, to analyze the lost profits and other damages claims of Plaintiffs and their experts.
The case ultimately was tried before a jury in state court in Grundy, Virginia. At trial, Professor Fischel testified that Plaintiffs' experts improperly ignored Harman's track record of losses and contemporaneous evidence of Harman's desperate financial condition, and that contrary to Plaintiffs' experts' unduly optimistic characterization of Harman's future financial performance, Harman was facing a serious risk of bankruptcy and was unlikely to survive. Therefore, their estimates of Harman's lost profits and other damages were contrary to the real world economic evidence and therefore implausible.
On May 23, 2014, the jury returned a verdict for Plaintiffs but only awarded damages of $5 million, a tiny fraction of the claimed amount. Because Plaintiffs were already awarded $6 million in an earlier breach of contract trial involving related conduct, damages in this latest proceeding may ultimately turn out to be zero.
Massey's victory is particularly significant because in another earlier trial where Massey was represented by different counsel involving the same tortious interference claims with a similar but smaller damage claim, Plaintiffs obtained a favorable jury verdict of $75 million including interest. That judgment was ultimately reversed because of a determination that the case was improperly tried in the wrong forum thus leading to the most recent retrial in Virginia.
Professor Fischel was assisted by Rajiv Gokhale, Jessica Mandel, and Jonathan Polonsky of Compass Lexecon's Chicago office. We worked with the trial team of Kevin Huff (lead trial counsel), Silvija Strikis, Michael Guzman, Daniel Bird, and Leslie Pope and others from Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C. who successfully represented Massey. We also worked closely with Mark Hansen from the same firm in the case.
Citing alleged problems with Sotheby’s business strategy and governance, Daniel Loeb and Third Point LLC launched a proxy fight to obtain three seats on Sotheby’s board of directors. Third Point sought to purchase additional shares of Sotheby’s in the contest but was restricted from doing so by a low-threshold poison pill adopted by Sotheby’s board that discriminated between active and passive investors. Third Point then sought a preliminary injunction from the Delaware Chancery Court seeking to postpone the shareholder vote until a trial could be held on the validity of the poison pill.
Compass Lexecon was retained by William Lafferty of Morris, Nichols, Arsht & Tunnell LLP, Tariq Mundiya of Willkie, Farr & Gallagher LLP, and Tibor Nagy of Dontzin Nagy & Fleissig LLP on behalf of their client, Third Point, to analyze the adverse impact of the poison pill on the likelihood Third Point would succeed in its proxy contest (and thus, suffer irreparable harm) as well as the likely impact of Third Point’s proxy contest on Sotheby’s shareholders. Compass Lexecon’s President Daniel R. Fischel submitted two expert reports in the case and testified by deposition.
The Court denied the preliminary injunction on the merits, but relied heavily on Prof. Fischel’s empirical analysis of data on proxy vote outcomes in determining that the poison pill would cause irreparable harm to Third Point. After the preliminary injunction hearing, Sotheby’s settled with Third Point, with Third Point receiving essentially its entire demand, including three seats on Sotheby’s board, an allowance to purchase more than 50% more shares than it previously owned, and reimbursement of $10 million for its expenses. Widespread press coverage attributed the favorable settlement to evidence brought out by Third Point’s counsel at the hearing demonstrating that a number of Sotheby’s directors shared Loeb’s concerns about Sotheby’s business strategy and governance. The end result was what The Wall Street Journal described as “technically a legal loss” with Sotheby’s giving “Third Point most of what it had sought.” Prof. Fischel was supported by a team from the Compass Lexecon Chicago office including David Ross, Todd D. Kendall, Greg Pelnar, Jonathan Polonsky, Anne Marie Yale, and David Strahlberg.
Plaintiffs in this case alleged that defendants conspired to purposely and unreasonably undervalue Rue La La, an internet “private sales” business in order to avoid triggering an earnout provision in a previously negotiated merger agreement. The case ultimately went to trial and resulted in a defense jury verdict and a complete victory for Compass Lexecon’s clients.
Professors Gordon Klein and Bradford Cornell acted as consultants in the case to defendants and testified by deposition. Prof. Klein analyzed the accounting treatment of the transactions by all parties, and rebutted several opposing experts who opined that the multiple contemporaneous analyses of value were biased and should not be presumed to be fair value. Prof. Cornell explained the typical measures of value used in earnout agreements and concluded that the earnout at issue did not include protections that could have been included if sellers had viewed the “fair value” of the company upon a subsequent sale as a “second way” of capturing value apart from the primary earnout terms, (which were based solely on EBITDA).
Compass Lexecon was retained by and worked with John Hardiman and Benjamin Walker of Sullivan & Cromwell. We also worked with Alexandra Walsh of Paul, Weiss, Rifkind, Wharton & Garrison LLP. Dr. Cornell and Professor Klein were supported by a team from CL’s Pasadena office led by Elisabeth A. Browne, John Hirshleifer, and John Haut.
Compass Lexecon was retained by counsel for Repsol to assist in quantifying damages in its ICSID arbitration claim due to the 2012 nationalization of its majority (51%) equity investments in Argentina.
Repsol had controlling investments in the largest integrated Argentine oil and gas company, YPF S.A., as well as in the LPG distribution Repsol YPF Gas S.A. The damages assessment involved the application of several valuation methodologies to determine the fair market value of the integrated oil and gas business in Argentina, as well as other damages due to the complex ownership structure and shareholder agreements.
The assessment of YPF’s business included upstream exploration blocks (containing the shale-oil and shale-gas developments of Vaca Muerta and others), oil and gas production activities, transportation and pipeline operations, refineries and refined products, industrial and agricultural chemicals and consumer products. As part of the tasks, the Compass Lexecon team developed supply and demand equilibrium frameworks in the context of both regulated and unregulated prices on wellhead oil and gas markets, as well as on downstream petrochemical products
The case was registered under ICSID in 2012, and was successfully settled with Argentina’s payout of US$ 5 billion in April 2014.
Compass Lexecon’s experts Manuel A. Abdala and Pablo T. Spiller led this engagement supported by a team in Compass Lexecon's New York, Washington DC, and Madrid offices which included Santiago Dellepiane, Anton García, Alex Rinaudo, Carina Chambarry, Mark Sheiness, Erica Hoffmaster, Anna Campos Marine, Nancy Cherashore and Rachel Marx. The team worked closely with Nigel Blackaby, Lluis Paradell, and Gustavo Topalian of Freshfields Bruckhaus Deringer LLP (Washington DC); Hector Mairal of Marval O’Farrell & Mairal (Buenos Aires); and Miguel Virgós, and Candido Paz Ares of Uría Menéndez (Madrid), who represented Repsol.
On April 25, 2014, Federal Maritime Commission Administrative Law Judge Erin M. Wirth dismissed with prejudice claims that our client, The Port Authority of New York and New Jersey (“PANYNJ”), committed multiple violations of the Shipping Act of 1984. Complainant Maher Terminals (“Maher”) alleged that PANYNJ’s lease agreement with APM Terminals (“APMT”) violates the Shipping Act of 1984 because it unreasonably provides more favorable terms than were provided to Maher in PANYNJ’s lease agreement with Maher. Compass Lexecon’s President Professor Daniel Fischel submitted a report and supplemental report and testified at deposition opining that, among other things, complainant’s expert failed to account for key economic differences between the Maher and APMT leases and did not establish that Maher was discriminated against. Compass Lexecon Executive Vice President Fredrick Flyer also submitted a report and testified at deposition opining that, among other things, PANYNJ gained shipping business as a result of its lease agreement with APMT and that Maher benefited from that incremental business. In ruling for respondent PANYNJ, Judge Wirth noted that while there were differences in the leases that PANYNJ negotiated with APMT and Maher, “those differences were based on different risks presented and benefits received by each entity” and that “economic realities justify PANYNJ not offering the same terms to Maher”. PANYNJ was successfully represented by Richard Rothman and Alex Levine of Weil, Gotshal & Manges. Professor Fischel was supported by a team in the Chicago office lead by George Hickey and Dr. Flyer was supported by a team in the Chicago office lead by Kirupa Ramaiah.
Raymond M. Pfeil, et al. v. State Street Bank and Trust Co., U.S. District Court, Eastern District of Michigan, Southern Division
Plaintiffs alleged a breach of fiduciary duty by State Street for failure to prudently manage the assets in General Motors Corporation's two main 401k plans, in violation of Section 404 of ERISA. Specifically, Plaintiffs alleged that State Street, in its role as a fiduciary and investment manager for the GM's Stock Fund, breached its fiduciary duty by having the fund continue to hold GM stock during the class period, despite a number of alleged red flags.
Professor Kenneth Lehn was retained by counsel for State Street to opine as to whether it was reasonable for State Street to continue to hold GM stock during the class period of July 15, 2008 through March 31, 2009. Based on the economic evidence, Professor Lehn concluded in his expert report and deposition that it was reasonable for State Street to continue to hold GM stock in the Stock Fund. In her opinion and order granting Defendant State Street's Motion for Summary Judgment, Judge Denise Hood cited and relied upon Professor Lehn for the following conclusions:
(1) If State Street had liquidated its holdings of GM stock on July 15, 2008 as Plaintiffs argued they should have, Plaintiffs would have lost out on GM's significant stock price increase shortly after the start of the class period.
(2) Sophisticated investors with fiduciary duties such as pension plans and large institutional investors continued to invest in GM over the class period.
(3) The consensus analyst recommendation during the class period was "hold", not "sell".
Defendants were successfully represented in the case by Bill Boies and Nancy Ross of McDermott Will & Emery LLP.
On March 13, 2014, the Federal Communications Commission (FCC) issued an order approving, subject to certain conditions, the spectrum license transfers required to complete AT&T’s $4 billion acquisition of Leap Wireless. This approval completed the regulatory review of the transaction, and AT&T closed the transaction on the same day. Compass Lexecon provided economic analysis in support of the regulatory review of the transaction at both the FCC and the Department of Justice (DOJ). Compass Lexecon expert, Mark Israel was retained by Richard Rosen of Arnold & Porter LLP and Wm. Randolph Smith of Crowell & Moring LLP on behalf of AT&T, and Compass Lexecon expert, Michael Katz was retained by Christine Wilson of Kirkland & Ellis LLP on behalf of Leap. Israel and Katz were supported by a Compass Lexecon team including Theresa Sullivan, Tom Stemwedel, Dzmitri Asinski, David Fenichel, Nauman Ilias, Jeff Raileanu, Gloriana Alvarez, Sara Leshen, Andrea Ortu, Ben Wagner, and Phil Wolf. During the regulatory review, Israel submitted two Declarations to the FCC and made a presentation to the DOJ, demonstrating that the transaction would provide substantial consumer benefits while generating minimal, if any, upward pricing pressure in a properly defined mobile wireless services market, and that the transaction presented no issues related to spectrum concentration or other competitive concerns. The Compass Lexecon team also supported counsel in all aspects of the regulatory review including substantial work in responding to DOJ and FCC data requests.
Compass Lexecon was retained by Edward Welch and Edward Micheletti of Skadden, Arps, Slate, Meagher & Flom LLP on behalf of their clients, Jos. A. Bank Clothiers, Inc. (Jos. A. Bank) and its directors, in litigation before the Delaware Chancery Court seeking to enjoin the proposed acquisition of Eddie Bauer by Jos. A. Bank. Compass Lexecon assisted counsel in responding to claims by Plaintiff that the proposed Eddie Bauer transaction was preclusive to The Men’s Wearhouse’s outstanding tender offer to acquire Jos. A. Bank. Our work included analyzing the Eddie Bauer transaction’s deal protection measures as well as Jos. A. Bank’s advisors’ analyses regarding the fairness of both the Jos. A. Bank – Eddie Bauer and Men’s Wearhouse – Jos. A. Bank proposed transactions in anticipation of filing an expert affidavit. The litigation terminated on March 11, 2014 prior to the Injunction Hearing upon Jos. A. Bank’s directors’ acceptance of an increased purchase offer and execution of a merger agreement with The Men’s Warehouse. The Compass Lexecon team included Kevin Dages, Jennifer Milliron, George Hickey, Tim McAnally, and David Strahlberg in our Chicago office.
Compass Lexecon was retained by Joel Friedlander of Bouchard, Margules and Friedlander, P.A. and Randy Baron of Robbins, Geller, Rudman & Dowd LLP (“Counsel”) on behalf of the plaintiff class in litigation before the Delaware Chancery Court regarding the sale of Rural/Metro Corporation (“Rural/Metro”) to private equity firm Warburg Pincus. Compass Lexecon expert Kevin Dages submitted an affidavit in support of Counsel’s opposition to former lead plaintiff’s proposed settlement for enhanced disclosures, opening and rebuttal expert reports, and testified before Vice Chancellor Laster at trial concerning the fair value of Rural/Metro, the reasonableness of the financial advisors’ valuations, and Rural/Metro’s proxy disclosures regarding those valuations. The individual director defendants and Moelis & Company LLC, one of two financial advisors, settled on the eve of trial for what the Court concluded was a “significant” common fund for the plaintiff class. Following a trial against the remaining defendant, RBC Capital Markets, LLC (“RBC”), Rural/Metro’s other financial advisor, the Court found RBC liable for aiding and abetting the individual director defendants’ breaches of duty of care and duty of disclosure. In a 91 page opinion the Court did not immediately rule on damages, but did find “Dages’s [Discounted Cash Flow, or DCF] valuation to provide persuasive evidence of fair value and adopt[ed] it as the general framework” for purposes of determining its damages remedy. The Court ordered the experts to submit revised analyses identifying a range of fair value for Rural Metro at the time of the merger and specifically employing “the explicit method of extending the [management] projections” utilized by Dages as well as Dages’ choice of CAPM, a risk-free rate, and size premium while recalculating beta using Dages’ method but with a shorter measurement period. Upon receipt of the revised expert submissions the Court will address Rural Metro’s fair value and establish the scope of remedy. Mr. Dages was supported by a team in Compass Lexecon’s Chicago office headed by Jennifer Milliron and Tim McAnally.
To enhance the value of its common stock, rationalize its capital structure and reduce its leverage ratio, our client, Emmis Communications Corporation (Emmis), determined that it would be in the best interests of its shareholders to commence a program to provide Emmis with flexibility to amend the terms of its preferred stock. As part of this program, Emmis repurchased preferred stock in the open market, entered into total return swaps with certain preferred stockholders, and issued preferred stock as part of an employee retention plan. In September 2012, after Emmis had obtained two thirds of the preferred stock, Emmis’s shareholders and preferred stockholders voted to amend the rights of the preferred stock, thereby, among other things, cancelling all unpaid preferred stock dividends to date, changing the designation of the preferred stock from cumulative to non-cumulative, and allowing Emmis to pay common stock dividends and other distributions prior to paying unpaid preferred stock dividends. Plaintiffs retained an expert to assess damages sustained by Plaintiffs as a result of the amendments. Compass Lexecon’s President, Professor Daniel Fischel submitted a report and testified at deposition on behalf of Emmis criticizing the damages methodology of Plaintiffs’ expert. Specifically, Professor Fischel opined that Plaintiffs’ expert’s analysis of the value of the preferred stock with and without the rights was unscientific, fundamentally flawed, and unreliable. Professor Fischel also demonstrated that the damages analysis of Plaintiffs’ expert was contradicted by the market evidence. On February 28, 2014, Judge Sarah Evans Barker of the Southern District of Indiana granted our client, Emmis Communications Corporation, motion for summary judgment. Professor Fischel was supported by a Compass Lexecon team led by Ralph Scholten in our Washington, D.C. office. The Compass Lexecon team worked closely with Rich Kempf and others of Taft Stettinius & Hollister LLP, who successfully represented Emmis.
In February 2014 the Honorable Chief Judge Christopher C. Conner of the U.S. District Court for the Middle District of Pennsylvania issued an opinion and order granting Defendants’ motions for summary judgment in a long-running antitrust dispute brought by individual purchasers of chocolate products and a certified class of direct purchasers of chocolate products. These cases had been brought against Nestle USA Inc., the Hershey Company, Mars, Inc. and Mars Snackfood USA. Among other things, Plaintiffs alleged that Defendants conspired to raise the prices of chocolate products in 2002, 2004 and 2007. Counsel for Hershey retained Compass Lexecon, and Compass Lexecon expert Professor Joseph Kalt to analyze the antitrust claims and to critique the testimony of Plaintiffs’ experts. Professor Kalt, with the assistance of a Compass Lexecon team headed by Steven Peterson and Eric Henson in our Boston office, demonstrated that no inference of conspiracy could be made given the economic evidence available. We worked with attorneys from Kirkland & Ellis LLP including Michael Becker, Jonathan Brightbill, and Craig Primis and from Patterson Belknap Webb & Tyler LLP, William Cavanaugh, Jr. and Vivian Storm in their representation of the Hershey Company.
Plaintiffs brought a class action for equitable relief and damages based on TIAA-CREF’s alleged wrongful use of customer funds. Specifically, Plaintiffs alleged that TIAA-CREF delayed the transfer of their funds from TIAA-CREF to another mutual fund, that their funds remained invested at TIAA-CREF during this transfer delay, and that they were entitled to the increase in “their” account value during this transfer delay. Plaintiffs retained two experts to provide a methodology to estimate recoveries to Plaintiffs. Compass Lexecon’s President Professor Fischel submitted a report and testified at deposition on behalf TIAA-CREF. Professor Fischel opined that Plaintiffs’ proposed methodology was flawed and unreliable. Specifically, Professor Fischel demonstrated that the proposed methodology estimated recoveries over the wrong time period, erroneously ignored payments made previously by TIAA-CREF to compensate Plaintiffs for transfer delays, would put Plaintiffs in a better position than they would have been if TIAA- REF had processed their transfer requests on time, and would compensate Plaintiffs for risks they did not bear. The case settled on favorable terms a few weeks before trial. Professor Fischel was supported by a Compass Lexecon team led by Ralph Scholten in our Washington, D.C. office. The Compass Lexecon team worked closely with Shannon Barrett, Steve Brody, Tess Gee, and others of O’Melveny & Myers LLP.
Compass Lexecon expert Jon Orszag testified on behalf of Comcast in a television carriage dispute between Comcast and Tennis Channel before Federal Communications Commission Administrative Law Judge Richard Sippel. The case was appealed to the U.S. Court of Appeals for the District of Columbia where the Court ruled in favor of Comcast and found that Tennis Channel had failed to prove that Comcast had discriminated against it by carrying the channel on a sports tier. The U.S. Court of Appeals decision incorporated many of the core economic arguments presented in Orszag’s testimony. Orszag was supported by a Compass Lexecon team led by Jay Ezrielev. Orszag and Compass Lexecon worked closely with lawyers from Davis Polk & Wardwell LLP, including David Toscano, Michael Carroll, and Michael Scheinkman.
On February 12, 2014, California State Judge Cormac Carney denied Plaintiff’s motion for preliminary injunction in a suit that claimed that Avanir’s 2014 proxy was materially misleading regarding its proposed equity compensation plan, allowing Avanir, our client, to proceed with the shareholder vote. Plaintiff sought to enjoin the shareholder vote in part because Avanir’s proxy allegedly omitted information regarding the reasons for and effects of the proposed equity compensation plan, including how, and at what rate, the plan may dilute shareholders’ interests. Compass Lexecon affiliate, Professor Robert Daines, the Pritzker Professor of Law and Business at Stanford Law School and co-director of the Rock Center on Corporate Governance, submitted a report on behalf of Avanir. Professor Daines opined that, from a policy perspective, the disclosures requested by Plaintiff should not be required because the costs of providing the additional information outweighed the benefits. Professor Daines also opined that, from an economic perspective, the additional disclosures were unlikely to be important to shareholders. Based on a review of a sample of similar companies holding similar votes, Professor Daines found that Avanir’s disclosures were consistent with industry custom and practice, that the requested additional information was rarely provided, and that none of the companies in the sample disclosed all of the information that Plaintiff claims was omitted by Avanir. In his opinion, Judge Carney cited Professor Daines’ analysis and concluded that if the Court were to require each of the details Plaintiff demanded, one would have needed to enjoin the vote at every single one of the companies Professor Daines examined. Professor Daines was supported by a Compass Lexecon team led by Ralph Scholten in our Washington, D.C. office. The Compass Lexecon team worked closely with John Tang and others of Jones Day.
A Compass Lexecon team, led by Manuel A. Abdala as expert, successfully assisted Guaracachi America Inc. (GAI) and Rurelec PLC (“Claimants”), in determining damages based on the fair market value for their 50% equity stake in Empresa Eléctrica Guaracachi S.A. (EGSA), a 200 MW conglomerate of various power plants located in Bolivia. The Claimants’ equity had been nationalized without compensation in May 2010. The January 2014 award by a PCA Tribunal granted compensation of over US$ 35 million, which was settled with a payment by Bolivia of US$ 31.5 million in early June 2014. Whereas the opposing expert opined that EGSA’s equity was worthless, Dr. Abdala showed that, despite operating in a low-price regulated environment, expected supply and demand conditions in Bolivia’s wholesale electricity market would have enabled EGSA to generate sufficient cash flows not only to repay its financial debt, but also to generate positive value to its shareholders. Dr. Abdala was assisted by Marcelo Schoeters, Julián Delamer, Gustavo De Marco, Federico Villar, Ivan Santilli and Daniela Repetto. Compass Lexecon was retained by counsel to Claimants, which included Nigel Blackaby, Noah Rubins and Lluís Paradell from Freshfields Bruckhaus Deringer.
Chrysler emerged from bankruptcy in 2009 and at the time, it issued membership interests to the United States Department of the Treasury, Fiat, and the UAW Retiree Medical Benefits Trust (the Trust), a health trust that was formed to provide medical benefits to current and future Chrysler retirees in the future. The Trust also received certain other assets including a note from Chrysler. Fiat had the option to repurchase certain percentages of the membership interests held by the Trust based on a formula. In July 2012, Fiat exercised its option to purchase a portion of the membership interests held by the Trust, leading to a disagreement over the price of the interests. Compass Lexecon’s President Professor Daniel Fischel and Compass Lexecon were retained by Alan Unger of Sidley Austin LLP on behalf of the Trust to assist in analyzing Chrysler’s value and the fairness of the price for the Chrysler membership interests held by the Trust. Ultimately, Fiat and the Trust reached a broader settlement under which Fiat agreed to buy all of the membership interests held by the Trust for $4.35 billion, implying a value of more than $10 billion for Chrysler’s equity. Professor Fischel was assisted by Rajiv Gokhale, Rahul Sekhar, and Cliff Ang in Compass Lexecon’s Chicago office.
Compass Lexecon affiliate David K.A. Mordecai filed multiple expert reports and provided deposition testimony on behalf of Ironshore Insurance in litigation against the company’s former asset manager, Western Asset Management Company. The dispute involved breach of contract and breach of fiduciary duty claims against Western Asset Management Company stemming from losses incurred by Ironshore on a fixed-income portfolio containing a large concentration of mortgage-backed securities. Dr. Mordecai was retained to evaluate the risks of the fixed-income portfolio and estimate damages. The case settled on December 30, 2013. We worked closely with Thorn Rosenthal and Whitney Smith at Cahill Gordon & Reindel LLP. Dr. Mordecai was assisted by Peter Clayburgh, Michael Kwak, Tristram Worth, and Ara Demirjian of Compass Lexecon’s Pasadena and New York offices.
Compass Lexecon economist David Weiskopf was retained by Mark Cunningham and David Radlauer of Jones Walker LLP to conduct economic analyses related to the proposed acquisition by Service Corporation International (SCI) of Stewart Enterprises, Inc. (Stewart) in the funeral and cemetery goods and services industry. Dr. Weiskopf was supported by a Compass Lexecon team based in Washington, D.C. that included Loren Smith, Bo Bourke, Maya Joyce, and GT Wrobel. Dr. Weiskopf worked closely with counsel from Jones Walker LLP, as well as with Stewart, SCI and its advisors, in performing various economic analyses. Dr. Weiskopf and the Compass Lexecon team also collaborated extensively with counsel for Jones Walker LLP and Stewart in preparing materials in response to the U.S. Federal Trade Commission’s (FTC) second request for additional information. Ultimately, in late December 2013, the FTC closed its investigation and approved the transaction subject to a divestiture of assets acceptable to the two parties.
On December 19, 2013 a Compass Lexecon team, with Manuel Abdala and Marcelo Schoeters as experts, successfully assisted the Republic of Guatemala to defend against a US$243.6 million investment treaty claim by TECO Guatemala Holdings LLC, a subsidiary of Florida-based energy company TECO Energy. The dispute involved Guatemala’s alleged undue regulatory process leading to low electricity distribution tariffs on its subsidiary EEGSA during the 2008- 2013 regulatory cycle. TECO held a 24% equity stake in EEGSA, but in late 2010, just prior to commencing arbitration, sold its EEGSA shares to a third-party investor for an estimated amount of US$120 million. TECO’s valuation expert assessed damages at US$243.6 million. The Tribunal found Guatemala liable, but based on testimony from Compass Lexecon’s experts, limited damages to US$21.1 million. The Compass Lexecon team included Julian Delamer, Alan Rozenberg and Daniela Repetto. Compass Lexecon’s experts were retained by Freshfields Bruckhaus Deringer.
Compass Lexecon economists Mary Coleman, David Weiskopf, and Peter Davis were retained by Garret Rasmussen, Antony Kim, Douglas Lahnborg, and Ryan Quillian of Orrick, Herrington & Sutcliffe LLP and Keith Jones and Alexandros Stratakis of Baker & McKenzie to conduct economic analyses of the proposed acquisition of MEI Conlux Holdings by Crane. Both companies offer payment solutions for unattended transaction systems, among other products and services. Drs. Coleman and Weiskopf were supported by a Compass Lexecon team in the U.S. including Bo Bourke and Syre Khan. Dr. Davis received support from a Compass Lexecon team based in Europe, including Kadambari Prasad, Erik Langer, Manuel Mertel Mortillo, Krishna Nandakumar, David Shaharudin, and Kai Wee. The European Commission approved the transaction conditional on the combined entity divesting Crane’s bill recycler product line and licensing in Europe Crane’s Currenza C2 coin recycler, produced in Germany. Compass Lexecon interacted extensively with Crane and MEI and submitted and presented a number of economic analyses to the United States Federal Trade Commission and the European Commission. The acquisition was completed on December 11, 2013.
On November 18, 2013 an Arbitration Panel ruled invalid the consent solicitation undertaken by Corvex Management LP (Corvex) and Related Fund Management, LLC (Related) in June 2013 to remove the Board of Trustees of CommonWealth REIT (CommonWealth). The Panel also upheld two key provisions of CommonWealth’s bylaws (the current share ownership requirement to request a consent solicitation and the length of the consent period), while granting Corvex and Related the opportunity to bring a new consent solicitation under certain guidelines set forth by the Panel. Compass Lexecon experts Professor Bradford Cornell and Kevin Dages testified before the Arbitration Panel. Dages provided an analysis of the ownership and trading activity in CommonWealth shares, as well as economic evidence on shareholding requirements in REIT bylaws which was utilized by the independent consent solicitation experts. The Panel cited the economic evidence as support for the reasonableness of the share ownership requirement ($2,000 of stock for at least one year) and consent period (30 days) provided in CommonWealth’s bylaws. Professor Cornell testified as a rebuttal witness regarding the damages analysis of Corvex and Related’s expert. After the submission of Professor Cornell’s expert report, Corvex and Related petitioned the Panel to withdraw their damages claim. The request was granted, with prejudice. The Compass Lexecon experts were supported by a team including John Haut, Jennifer Milliron, Jonathan Polonsky, David Strahlberg, and Laura Yergesheva. The team from Compass Lexecon worked closely with counsel for the CommonWealth Trustees, Thomas Allingham, Robert Saunders, Lea Haber Kuck, James Carroll, Stephen Dargitz and Joseph Larkin of Skadden, Arps, Slate, Meagher & Flom LLP.
Compass Lexecon was retained by Activision Blizzard, Inc. (Activision) in connection with litigation seeking to enjoin a transaction involving Activision’s repurchase of shares owned by majority shareholder Vivendi S.A. Compass Lexecon expert Kevin Dages submitted an affidavit in conjunction with the preliminary injunction hearing in which he provided economic evidence regarding the benefits of the proposed transaction to Activision and its shareholders. In the Delaware Chancery Court’s ruling, the Court acknowledged the benefits of the merger to Activision’s minority shareholders but granted an injunction based on its legal finding that the transaction constituted a business combination and thus required a shareholder vote. On appeal, the Delaware Supreme Court reversed the Chancery Court’s decision, finding that the transaction was not a business combination requiring a shareholder vote, and Activision consummated the repurchase transaction. Mr. Dages was supported by a team in the Chicago office headed by Cliff Ang and Jennifer Milliron. Compass Lexecon worked with Ed Welch, Ed Michelleti, Sarah Runnells Martin, and Lori Will of Skadden, Arps, Slate, Meagher & Flom LLP.
On November 12, 2013, US Airways and American Airlines announced that they had reached a proposed settlement with the Department of Justice (DOJ) and several states to end the litigation challenging their merger and that, as a result, they expect to complete the merger by the end of 2013. Under the settlement, the parties agreed to divest slots and gates at several airports and to make certain other commitments, but otherwise are allowed to proceed with the merger that will create the world's largest airline and, even with the divestitures, generate over $1 billion in estimated annual synergies. According to the Wall Street Journal: "Many antitrust and airline industry experts deemed the settlement a victory for the carriers, because it left the vast majority of their merger plan intact."
This proposed settlement effectively brought to a close nearly two years of Compass Lexecon work on this matter, starting with separate teams advising both US and American on the merger, proceeding to a joint Compass Lexecon team submitting multiple white papers and making several presentations during the DOJ investigation of the matter, and culminating with the submission of four expert reports by Compass Lexecon experts (Dennis Carlton, Janusz Ordover, Dan Kasper, and Rajiv Gokhale) as part of the litigation. The clients have been universal in their praise of the work and their view that Compass Lexecon played a significant role in what they see as a successful resolution of the case.
Among those working on a large Compass Lexecon team supporting the multiple experts on the case were Mark Israel, Chip Bamberger, Darin Lee, Yair Eilat, Lynette Neumann, Eugene Orlov, Theresa Sullivan, Eric Amel, Bo Bourke, Jonathan Bowater, Mike Easterly, Jay Ezrielev, David Fenichel, Joseph Goodman, Nauman Ilias, Bryan Keating, Neal Lenhoff, Bich Ly, Ian MacSwain, Avisheh Mohsenin, David Molin, Greg Pelnar, Hans-Jürgen Petersen, Jonathan Polonsky, Jeff Raileanu, Michael Sabor, Rohini Sadarangani, Dan Stone, and Jonathan Williams. Throughout the case, Compass Lexecon worked closely with outside counsel, including Richard Parker and Henry Thumann of O'Melveny and Myers; John Majoras, Joe Sims, and Bruce McDonald of Jones Day; Rick Rule and Andrew Forman of Cadwalader, Wickersham, and Taft; Paul Denis and Paul Friedman of Dechert; and MJ Moltenbrey of Paul Hastings. Compass Lexecon also worked closely with inside counsel for the airlines, including Stephen Johnson and Howard Kass of US, and Bruce Wark and James Kaleigh of American.
This case involved a class action brought on behalf of those who purchased and/or owned homes built by Pulte Homes after January 1, 2003 containing a certain type of insulation which allegedly caused property damage. Plaintiffs retained three experts who performed different parts of a damage calculation and collectively opined that damages exceeded $1 billion. Compass Lexecon expert Rajiv Gokhale was retained to address these claims. In his report and deposition testimony in the case, Gokhale demonstrated that the Plaintiffs’ experts’ methodology was fundamentally flawed and could not be used for establishing damages on a class wide basis. In November 2013, Judge Dale Fischer of the United States District Court Central District of California issued two opinions excluding the testimony of all three of Plaintiffs’ experts and decertifying the class because Plaintiffs failed to provide a model capable of measuring restitution on a class wide basis. Gokhale was assisted by Avisheh Mohsenin in Compass Lexecon’s Chicago office. Compass Lexecon was retained by William Donovan, Jr. of Cooley LLP who successfully represented Pulte.
FTC Relies Heavily on Econometric Analyses
On November 1, 2013, the United States' Federal Trade Commission provided regulatory clearance for the merger of OfficeMax and Office Depot, two of the largest office supplies retail chains in the United States. The office supplies industry attracted significant attention among the antitrust community in 1997, when Staples and Office Depot attempted to merge. That transaction was challenged by the FTC, and was blocked by the Court. The court proceedings in FTC v. Staples (1997) involved large-scale, complicated econometric work that pioneered the application of econometrics in antitrust cases. As a consequence, the February 2013 announcement of the OfficeMax and Office Depot merger generated a lot of public attention.
A Compass Lexecon team — Jon Orszag, Eugene Orlov, Dan Stone, Neal Lenhoff, Joseph Goodman, Jonathan Williams and many others in the Chicago office — was retained by Paul T. Denis, James A. Fishkin and Rani A. Habash of Dechert LLP to first advise the board of directors of OfficeMax and then provide economic analysis of the proposed transaction. Compass Lexecon also worked closely with Matthew J. Reilly, Kevin J. Arquit, Andrew M. Lacy and Evan I. Cohen of Simpson Thacher & Bartlett LLP, who were retained by Office Depot.
Compass Lexecon performed detailed econometric analyses of the competitive retail price effects of the transaction and the merging parties' pricing, and substantially expanded the econometric modeling used in FTC v. Staples. The analysis concluded that there was no systematic evidence that the proposed merger would result in higher retail prices, a finding that was presented to the FTC and ultimately cited as one of the main reasons to clear the merger. Specifically, the FTC said, "The econometric analysis reflects the new competitive dynamics in the industry and shows that the proposed merger is unlikely to result in anticompetitive price effects... All of the econometrics, none of which assumed or depended on any particular definition of a relevant product or geographic market, indicate that the merger is unlikely to lead to anticompetitive price increases."
We were retained by counsel for Google Inc. and counsel for Google’s founders, Larry Page and Sergey Brin (the Founders), to analyze Plaintiff’s claims that Google’s April 12, 2012 proposal for the issuance of a new class of non-voting stock via a stock dividend was “a thinly veiled attempt to further entrench the Founders’ voting power and control over the Company without any legitimate business purpose” and was detrimental to Google’s existing Class A shareholders. Compass Lexecon’s President Professor Daniel Fischel, submitted a report and a rebuttal report and testified at deposition, opining that, among other things, the economic evidence did not support Plaintiff’s claims, and that the proposed recapitalization was comparable to or more favorable to Class A shareholders than recapitalizations by other companies that have issued non-voting or limited voting common stock. Just prior to the commencement of trial the parties entered into a Memorandum of Understanding that documented the parties’ agreement to settle Plaintiff’s claims. The settlement was approved by Chancellor Leo E. Strine, Jr. in October 2013. Professor Fischel was assisted by David Ross, Laurel Van Allen, Jonathan Polonsky, and Sam Hollander in Compass Lexecon’s Chicago and Oakland offices. Google was represented by William Chandler III, Boris Feldman, David Berger and Gideon Schor of Wilson Sonsini Goodrich & Rosati, and by William Lafferty, Kevin Coen and D. McKinley Measley of Morris, Nichols, Arsht & Tunnell LLP. The Founders were represented by Ronald Olson, John Spiegel and George Garvey of Munger, Tolles & Olson LLP and by Stephen Lamb of Paul, Weiss, Rifkind, Wharton & Garrison LLP.
Judgment Follows Successful Trial Testimony of Compass Lexecon's President, Professor Daniel Fischel
Last week, Judge Ronald A. Guzman of the Northern District of Illinois entered a judgment against Household International (now HSBC Finance Corporation) and three officer defendants of $2.46 billion, the largest judgment following a securities fraud class action trial in history. Earlier, a federal court jury in Chicago delivered a verdict in favor of Compass Lexecon's client, a class of investors. The jury determined that all four defendants violated federal securities laws and that a result, Household's stock price was inflated by $23.94 a share for much of an 18 month period. Compass Lexecon expert Daniel Fischel provided expert testimony on materiality, causation, and the quantification of inflation on behalf of the plaintiff class in the case.
Professor Fischel at trial quantified inflation using two different methods - the first focusing on stock price reactions to specific disclosures and the second focusing on analysis of stock price movements over a longer period based on a leakage model. Professor Fischel also responded to various criticisms and claims by defendants' experts as the only rebuttal witness. The jury adopted the per share inflation calculations taken directly from Professor Fischel's leakage model in its verdict. A lengthy damages phase then followed the trial prior to the entry of the judgment.
A team from our Chicago office including Mike Keable, David Ross, Jessica Mandel, Jerry Lumer, Cliff Ang, and Peter Clayburgh worked on the case and provided valuable assistance. We worked with Mike Dowd, Spence Burkholz, Dan Drosman, Azra Mehdi, and Luke Brooks from Robbins Geller Rudman & Dowd LLP who successfully represented the plaintiff class.
On October 16, 2013, a federal jury rejected SEC claims that Mark Cuban engaged in insider trading when he sold his stake in internet company Mamma.com after learning that the company would sell shares in a private investment in public equity (PIPE) transaction that purportedly caused its stock price to decline. A team from our Chicago office led by Mike Keable acted as consultants to Cuban’s counsel. We analyzed the economic evidence regarding Mamma.com’s stock and the materiality of PIPE transaction announcements and concluded that it was inconsistent with the SEC’s claims.
On October 3, 2013, just prior to trial, Compass Lexecon’s client, Deloitte & Touche LLP (Deloitte) settled multiple lawsuits in Florida state court in which both Deutsche Bank and the now-bankrupt entity Ocala Funding (Taylor Bean & Whitaker Mortgage Corp.’s (TBW) commercial paper conduit) were seeking billions in damages from Deloitte for failing to detect a criminal fraud carried out by the former executives of TBW and Ocala Funding. Plaintiffs claimed that Deloitte was “grossly negligent” in its audits of TBW from 2002 until 2009 because it did not discover a collusive fraud perpetrated by TBW and Ocala Funding executives in conjunction with TBW’s bankers at Colonial Bank. Both TBW and Colonial Bank declared bankruptcy in August 2009 after Deloitte withdrew from the field and federal law enforcement raided TBW’s headquarters. Compass Lexecon supported structured finance expert Christopher Culp, who testified in deposition about the structure and operations of the Ocala Funding assetbacked commercial paper conduit and the roles of various entities involved in that structure. Compass Lexecon also supported damages expert Bradford Cornell, who rebutted Plaintiffs’ multi-billion dollar damages claims in deposition testimony, and accounting expert Gordon Klein, who testified in deposition about on balance-sheet and off-balance sheet accounting for the sale of mortgage loans. We worked with John Hughes, Christopher Landgraff, Mark Levine and others at Bartlit Beck Herman Palenchar & Scott LLP, as well as Patricia Gorham, Amy Rudolph, and others at Sutherland Asbill & Brennan LLP. The Compass Lexecon team that supported our experts included Peter Clayburgh, Elisabeth Browne, John Hirshleifer, May Huang, and others in our Pasadena office, as well as George Hickey in our Chicago office.
On September 30, 2013 the United States District Court for the District of Maryland found unconstitutional a Maryland Public Service Commission (PSC) order directing the state’s electric utilities to enter into long-term contracts that required the utilities to pay PSC-set prices for the sales of capacity and energy from a new power plant to be constructed by a State-chosen developer. This case focused on the constitutionality of the PSC-mandated contract for differences (CFD) that would have required that the developer successfully bid its new capacity and energy into the federally-regulated regional wholesale power markets of the PJM Interconnect, while the utilities would have been required to pay the developer the differences between the PJM market prices and the contract price – an out-of-market price set by the PSC. The court found that the PSC’s order unconstitutionally dictated, through the CFD, wholesale prices in interstate power markets where the doctrine of field preemption forecloses state regulation since it is a field that by law is occupied entirely by the federal government. This ruling was favorable for Compass Lexecon’s clients PPL EnergyPlus, LLC, PSEG Power, LLC and the other Plaintiffs.
The court frequently cited the testimony of Compass Lexecon affiliate Professor Robert Willig. Professor Willig’s testimony explained the economics underlying the structure of PJM’s wholesale markets for electric generation capacity and energy, and showed on the basis of the economics of the definition and functionality of pricing that the CFD would have supplanted the PJM market prices with the PSC-set contract prices.
Compass Lexecon was retained by David Meyer of Morrison & Foerster LLP and Richard Roberts of Steptoe & Johnson LLP. Professor Willig was primarily supported by Glenn Mitchell and Marc Huntley in Compass Lexecon’s Pasadena office with additional support provided by Joe Cavicchi and David Molin in our Boston office.
Jury Finds Minimal Damages for HannStar Based on Testimony from Compass Lexecon Expert Professor Dennis Carlton and No Liability for Toshiba
HannStar and other Taiwanese, Korean, and Japanese firms (not including Toshiba) had previously reached guilty plea agreements with the U.S. Department of Justice for fixing prices on LCD panels. In this litigation, Best Buy accused Toshiba and HannStar of conspiring for the better part of a decade with other firms to fix prices for LCD panels and sought damages related to this alleged conspiracy. Best Buy asked for damages of more than $2 billion post-trebling. Plaintiffs relied on their economic expert for their claimed damages which was based on a complicated econometric model. Plaintiffs' expert claimed average overcharges were around 20%.
Compass Lexecon's Professor Dennis Carlton testified that Best Buy's expert witness had greatly overstated any overcharges resulting from the alleged conspiracy. He explained how some basic economic calculations showed how unreasonable Plaintiffs' expert's claims were. He also showed that with some simple changes to the Plaintiff's expert's econometric model, the huge price overcharge disappeared. Professor Carlton presented his own econometric model, and found overcharges that were in the range of 0.4% to 1.9%, depending upon the type of panel.
The jury found no liability for Toshiba, and, for HannStar, which admitted liability, the jury awarded direct damages in precisely the amount based on Professor Carlton's analysis — $7.47 million. The jury also found that the conduct did not have a direct, substantial and reasonably foreseeable effect on commerce in the United States. For this reason, press stories after the verdict stated that HannStar may ultimately not have to pay any damages.
Professor Carlton was supported by teams in Compass Lexecon's Washington D.C, Boston and Chicago offices, which included Mark Israel, Ian MacSwain, Allan Shampine, Chris Cavanagh, Guillermo Israilevich, Georgi Giozov, Joel Papke, Quinn Johnson, Ben Wagner, Dave Grothouse, and many others. The team worked closely with Chris Curran, Mark Gidley, Martin Toto and Kristen McAhren of White & Case who successfully represented Toshiba, and Robert Freitas of Freitas, Tseng & Kaufman who successfully represented HannStar.
Panel Relies Extensively on Analysis by Compass Lexecon Expert Professor Robert Willig
On August 9, the United States Court of Appeals for the D.C. Circuit ruled unanimously in favor of Compass Lexecon's clients, the four major U.S. railroads, BNSF, CSX, Norfolk Southern and Union Pacific, and vacated the District Court's certification of a class in the Rail Freight Fuel Surcharge Antitrust Litigation. The D.C. Circuit's opinion relied extensively on the expert testimony provided by Compass Lexecon's Professor Robert Willig in concluding that the plaintiffs' expert's analysis of common injury among members of the proposed class was fundamentally flawed and yielded "obviously false estimates."
Plaintiffs in the case alleged that the four major railroads conspired to impose rate-based fuel surcharges on shipments beginning in 2003 and sought certification of a class of rail customers that paid fuel surcharges. Plaintiffs' claimed that certification of this expansive class was appropriate based on a purported statistical analysis that attempted to relate changes in rates paid by the railroads' customers after 2003 to the increased use of fuel adjustment clauses in shipping contracts as well as changes in the structure of these clauses.
The District Court granted class certification, but on appeal the panel reversed, stressing that the Supreme Court's March 2013 decision in Comcast v. Behrend requires a higher standard of review for proving common injury in class certification. The panel further held that the district court failed to consider the flaws in the plaintiffs' damage model that had been highlighted by Professor Willig, specifically those that led to substantial false positives.
The opinion is particularly important because of the panel's emphasis on the newly critical role of the use of reliable statistical methods in class certification analysis, concluding that "[i]t is now clear, however, that Rule 23 not only authorizes a hard look at the soundness of statistical models that purport to show predominance—the rule commands it. Mindful that the district court neither considered the damages model's flaw in its certification decision nor had the benefit of Behrend's guidance, we will vacate class certification and remand the case to the district court to afford it an opportunity to consider these issues in the first instance."
Dr. Willig was supported by a team in Compass Lexecon's Chicago office that included Hal Sider, Tom Stemwedel and Dzmitry Asinski, and worked closely with Tom Isaacson of Covington & Burling, Samuel Sipe of Steptoe & Johnson, Saul Morgenstern of Kaye Scholer, and Shari Lahlou at Crowell & Moring.
Compass Lexecon's President, Professor Daniel Fischel Testifies Successfully at Trial
Following the 9/11 Terrorist Attacks on the World Trade Center, leaseholder Larry Silverstein and associated business entities ("Silverstein") filed suit against various airline defendants including American Airlines, United Airlines, and Boeing seeking tort damages for losses sustained as a result of destruction of the buildings. Subsequent litigation had established that the maximum tort damages recoverable were approximately $3.5 billion. The issue in the current case was whether Silverstein could proceed with his tort damage claim, even though he had already recovered approximately $5 billion in business interruption and replacement cost insurance proceeds.
The airline defendants, represented by lead counsel Roger Podesta of Debevoise & Plimpton LLP, argued that the $5 billion in insurance payments already received "corresponded" to the $3.5 billion of potential tort damages because they were both for the same economic loss and, therefore, Silverstein was entitled to no further compensation. Silverstein, by contrast, claimed that there was no correspondence because of his obligation to rebuild the destroyed buildings and, therefore, he should be allowed to proceed to trial to recover tort damages of billions of dollars against the airlines, in addition to the $5 billion in insurance recoveries. After a July 2013 bench trial, Judge Alvin K. Hellerstein of the United States District Court, Southern District of New York ruled in favor of the airline defendants and held that the $5 billion in insurance recoveries corresponded to and "completely offset" potential tort damages against the airline defendants and, therefore, Silverstein was entitled to no further compensation.
Compass Lexecon's President, Professor Daniel Fischel, testified for the airline defendants at trial. Among other things, Professor Fischel explained the relationship between replacement cost and diminution in market value as two different ways to measure the loss caused by damage to property. Professor Fischel further explained that a plaintiff is fully compensated if they receive insurance proceeds for business interruption and/ or replacement cost in an amount greater than the lesser of diminution in market value or replacement cost. Judge Hellerstein quoted from and relied on Professor Fischel's testimony in his opinion, concluding that it was "more credible" than the testimony by the opposing expert.
Compass Lexecon also was heavily involved in earlier phases of the litigation. We worked closely with Brian Fraser of Richards Kibbe & Orbe LLP (who also was one of the counsel for the airline defendants at the correspondence trial) on various issues relating to the valuation of the destroyed World Trade Center buildings. During this earlier phase, Professor Fischel made numerous oral and written presentations discussing the proper valuation methodology for calculating losses caused by the terrorist attacks.
Apart from the counsel listed above, we also worked with Maura Kathleen Monaghan and Erica Weisgerber of Debevoise & Plimpton LLP, Desmond T. Barry, Jr. and Evan Kwarta of Condon & Forsyth LLP, Rowan Gaither of Richards Kibbe & Orbe LLP, Jeffrey J. Ellis of Quirk & Bakalor, P.C., and Ann Taylor and T. Patrick Byrnes of Locke Lord Bissell & Liddell LLP. The Compass Lexecon team that worked on this matter in addition to Professor Fischel included Rajiv Gokhale (who also filed several declarations), Todd Kendall, and Erika Morris of our Chicago office.
Seamless North America LLC and GrubHub Inc., the two largest providers of Internet-based online restaurant discovery and food ordering services, sought to merge in mid-2013. The two firms and their counsel, Karen Silverman, Josh Holian, Debbie Won, Miriam McClure and Shahab Asghar of Latham & Watkins LLP for Seamless and Mark Tully, Kirby Lewis, and Todd Hahn of Goodwin Procter LLP for GrubHub retained Compass Lexecon to provide economic analysis of the transaction. Jon Orszag, Kevin Green and Maria Stoyadinova assisted by a team from the Washington, D.C. office that included Genaro Marquez and Piyal Hyder, helped the parties gain regulatory clearances from the U.S. Department of Justice (DOJ). Compass Lexecon performed a wide ranging analysis of the competitive effects of the transaction, including a written submission to the DOJ. Our analysis addressed relevant markets for online ordering, the relevance and magnitude of network effects in a two-sided market, and detailed empirical analysis of commission rates across cities and over time, among other topics.
On May 29, 2009, Cox Enterprises, Inc. consummated a short-form merger in which Cox Enterprises, Inc., through its wholly-owned subsidiary Cox Media Group, acquired the shares of Cox Radio, Inc. stock it did not own at a price of $4.80 per share. Petitioners (Towerview LLC et al.) alleged that the merger consideration of $4.80 per share substantially underestimated the value of their shares.
Compass Lexecon was retained by Respondents to analyze the value of the shares. Compass Lexecon expert Rajiv Gokhale testified at a four-day trial at the Court of Chancery of the State of Delaware that the fair value of the petitioners’ shares was in the range of $3.40 to $5.29, with a midpoint of $4.28 per share. By contrast, Petitioners’ valuation expert
testified that the fair value of the petitioners’ shares was between $11.05 and $12.12 per share.
On June 28, 2013, Vice Chancellor Donald F. Parsons issued an opinion concluding that the fair value of petitioners’ shares was $5.75 per share. In reaching his decision, Vice Chancellor Parsons accepted and began with “Gokhale’s model as a general framework,” because “Gokhale’s approach provides a more appropriate starting point,” and found “Gokhale’s valuation approach to be more reliable generally.”
Compass Lexecon worked with Kevin Abrams, J. Peter Shindel Jr., and Daniel Gordon of Abrams & Bayliss LLP. Rajiv Gokhale was assisted by Cliff Ang, Margaret Hlebowitsh, Avisheh Mohsenin, Andrew Lin and others in Compass Lexecon’s Chicago office.
On June 24, 2013, the U.S. Department of Justice (DOJ) and the European Commission (EC) cleared the proposed acquisition of joint control over Virgin Atlantic by Delta (replacing Singapore Airlines as a 49% minority shareholder) and Virgin Group (retaining its 51% stake). The transaction also involved the formation of a fully integrated joint venture between Delta and Virgin Atlantic, with a view to bringing together their passenger air transport operations on routes between the United Kingdom and North America. The U.S. Department of Transportation (DOT), which had the final say on granting antitrust immunity for the joint venture, gave its formal approval in September 2013. In the U.S., the DOJ closed its investigation without taking any action following a second request. A Compass Lexecon team including Dan Rubinfeld, Chip Bamberger, Bryan Keating, Theresa Sullivan, Sara Leshen, and Mihir Narain assisted Christine Varney, Yonatan Even, Margaret Segall, and Pierre Gemson at Cravath, Swaine & Moore LLP, outside counsel to Delta in the U.S. The team presented evidence demonstrating that the proposed joint venture would substantially enhance network quality to the benefit of consumers while the overlaps on trans-Atlantic routes did not raise competitive concerns. The EC’s clearance decision followed a Phase I investigation, during which the Commission’s investigation confirmed that in all markets the combined entity would continue to face competition from several strong competitors, notably British Airways and American Airlines. Compass Lexecon Europe’s team, including Jorge Padilla, Urs Haegler, Enrique Andreu, Eduard Barniol Barcons and Krishna Nandakumar, assisted Delta and its European legal adviser, Norton Rose Fulbright LLP, before the Commission, by quantifying the efficiencies created by the agreement, in particular with regard to schedule delay reductions, economies of density and the fare benefits for behind-and-beyond passengers that flow from the joint venture (‘out-of-market efficiencies’) on the London-New York and London-Boston routes.
On June 19, 2013, Utah State Judge Andrew H. Stone ruled in favor of Defendants, our clients, denying an injunction in a suit claiming that Mr. You-Bin Leng, Feihe International’s Chairman and Chief Executive Officer, and an affiliate of Morgan Stanley Private Equity Asia were attempting to acquire the company via an unfair process at a grossly inadequate and unfair price. Plaintiffs alleged, among other things, that the $7.40 per share consideration (a 21.3% premium to market) failed to reflect the value of certain receivables and was based on financial projections with unreasonable assumptions. Compass Lexecon expert Kevin Dages submitted a Declaration on behalf of Defendants. In ruling for Defendants, Judge Stone noted the offer premium and stated that he was persuaded by the Dages Declaration with regard to the treatment of the receivables and that even taking into account these receivables the consideration was within the reasonable range of values for the stock. Feihe International and Mr. You-Bin Leng were represented by Stellman Keehnel, Andrew Escobar, and Stephen Hsieh of DLA Piper LLP. Morgan Stanley was represented by Eric Waxman, Harriet Posner, and Nicole DiSalvo of Skadden, Arps, Slate, Meagher & Flom LLP. Kevin Dages was assisted by George Hickey, David Strahlberg, Ed Crane, and Ben Xiao of Compass Lexecon’s Chicago office.
Compass Lexecon’s clients, SHP Asset Management (SHP) and its affiliates (Plaintiffs), and Defendant CalPERS had invested in SHP Senior Housing Fund, which was formed to invest in retirement homes. SHP, as fund manager, was entitled to receive an Incentive Distribution at the end of 2007 and every seven years thereafter and an Asset Management Fee every quarter. In late 2007, CalPERS retained Duff & Phelps to appraise the retirement homes and affiliated nursing facilities for the purpose of determining the Incentive Distribution. In June 2008, CalPERS ordered Duff & Phelps to revise its earlier appraisals and sought to replace the original appraisals with revised appraisals that placed lower values on the properties. Compass Lexecon expert Rajiv Gokhale testified on behalf of Plaintiffs that the reasons offered by Duff & Phelps for revising its appraisals did not justify the significant reduction in value from the original appraisals.
On May 13, 2013, Chancellor Leo E. Strine, Jr. of the Delaware Chancery Court decided the dispute in Plaintiffs favor, specifically that CalPERS Incentive Distribution should be based on the original Duff & Phelps appraisals. Chancellor Strine’s opinion stated that Mr. Gokhale “testified convincingly that the two reasons that Duff & Phelps gave for restating the appraisals … could not justify this huge reduction in value” from Duff & Phelps’ original to its revised appraisals.
Compass Lexecon worked with Matthew F. Davis, Timothy R. Dudderar, and Matthew E. Fischer of Potter Anderson & Corroon LLP. Rajiv Gokhale was assisted by Avisheh Mohsenin, Michael Pugh, and others in our Chicago office.
On April 29, 2013 Pennsylvania Court Judge Christine Ward dismissed seven consolidated shareholder derivative and purported class action lawsuits, clearing the way for the successful shareholder vote on the acquisition of H.J. Heinz by Berkshire Hathaway and 3G Capital. Plaintiffs claimed, among other things, that a variety of deal protection provisions, including termination fees, a matching provision, a no solicitation provision, and the absence of either a pre-signing or post-signing “market check” precluded other potential acquirers from bidding to acquire Heinz and resulted in a low merger consideration. Compass Lexecon has extensive experience analyzing these types of claims and on a compressed schedule was able to marshal both theoretical and empirical evidence on deal protection provisions. Professor Kenneth Lehn submitted an Affidavit on behalf of Heinz and its Board demonstrating that target company shareholders can receive economic benefits from deal protection provisions, that such provisions are commonplace in large transactions, and that they do not preclude topping bids whether or not there was an explicit market canvass by the company. The team that supported Professor Lehn was led by David Gross and included Jonathan Polonsky and David Strahlberg in the Chicago office. Heinz and its Board were represented by Thomas Allen and Roy Arnold of Reed Smith LLP and Lawrence Portnoy, Scott Luftglass, Brian Burnovski, and George Turner of Davis Polk & Wardwell LLP.
Meg Guerin-Calvert served as the economic expert for the Pennsylvania Insurance Department (PID) to assist with the PID’s evaluation of the potential competitive effects and benefits to the public interest of the insurance buying public of the proposed affiliation between Highmark, Inc. and West Penn Allegheny Hospital System (WPAHS) and resulting reorganization including the creation of an integrated delivery network (IDN). Compass Lexecon worked extensively with the PID and their outside counsel Blank Rome LLP (Lawrence Beaser, William Gramlich, William Roberts and Ray Shapiro) and financial consultants from Blackstone to review filings, reports and information provided to the PID, including those from various health care providers, insurers and other stakeholders in Western Pennsylvania, to evaluate the potential competitive effects and benefits to the public interest of the affiliation. Ms. Guerin- Calvert submitted an expert report addressing vertical integration, competitive effects in insurance and hospital services, benefits from integrated delivery systems and empirical assessment of claimed benefits and evaluating potential remedies such as firewall policies. The affiliation between Highmark and WPAHS was approved by the PID in on April 29, 2013, subject to a number of conditions including, inter alia, ones aimed at protecting consumers and preserving competition. Ms. Guerin-Calvert was supported by a Compass Lexecon team including Susan Manning, David Weiskopf, Mary Coleman, and Jeff Raileanu.
Plaintiffs in this case alleged that Moody’s Investors Service (Moody’s) ratings of a structured investment vehicle were false and without a reasonable basis. Compass Lexecon expert Professor Bradford Cornell submitted an expert report and testified at deposition on behalf of Moody’s. He found that Moody’s opinions were based on a reasoned analysis and the methods used by Moody’s were supported by accepted industry practices and supported in the academic literature. Professor Cornell also rebutted claims by Plaintiffs’ expert that there were deficiencies in Moody’s approach. On April 26, 2013, the case settled very favorably just before trial causing Moody’s stock price to jump 8.3% according to the Wall Street Journal. Professor Cornell was supported by a team in Compass Lexecon’s Chicago office including Jerry Lumer, Vince Warther, Donnie Hong, and many others. We worked with Joshua Rubins and others at Satterlee Stephens Burke & Burke LLP and Joel Cohen and others at Gibson, Dunn & Crutcher who represented Moody’s Investors Service.
On March 20, 2013, both the Federal Communications Commission (FCC) and the Department of Justice (DOJ) granted full approval – with no conditions – to the merger between T-Mobile USA and MetroPCS, with the FCC indicating that the merger would strengthen competition in the U.S. wireless market by “moving toward robust competition and revitalized competitors,” and the DOJ indicating that the merger was “unlikely to harm consumers or substantially lessen competition.” The companies completed their merger in May of 2013. This successful outcome was the culmination of more than six months of work by a Compass Lexecon team, with Mark Israel as expert, supported by Paolo Ramezzana, David Fenichel, Ben Wagner, Joel Papke, John Hore, and others. The Compass Lexecon team presented econometric results to both the DOJ and FCC demonstrating the merger’s pro-competitive effects, including innovative work to translate the effects of network quality on customer churn into a measure of the monetary value of the transaction to consumers and to measure the marginal cost savings from the transaction. Compass Lexecon worked closely with Mark Nelson, George Cary, and Patrick Bock of Cleary Gottlieb Steen & Hamilton LLP in conducting the antitrust analysis of the transaction.
Compass Lexecon economist Mary Coleman was retained by William Berkowitz of Bingham McCutchen LLP and Joseph Tringali of Simpson Thacher & Bartlett LLP to conduct an economic analysis of the proposed acquisition of Sealy by Tempur-Pedic. Dr. Coleman was supported by a Compass Lexecon team including David Weiskopf, Steve Peterson, Bo Bourke, Syre Khan, and David Foster. Compass Lexecon interacted extensively with counsel and conducted a number of economic analyses. After issuing a second request for additional information, the FTC closed its investigation and cleared the acquisition on March 18, 2013.
In December 2012, the UK Office of Fair Trading unconditionally approved a completed acquisition by Sports Direct of certain JJB Sports stores. This approval came two years after the UK Competition Commission had concluded that Sports Direct and JJB Sports together comprised a relevant antitrust market. In the latest case, the OFT accepted the failing firm defense on the grounds that the acquired stores would inevitably have exited the market but for the transaction, that there was no less anti-competitive purchaser than Sports Direct, and that the exit of the purchased stores and dispersal of their sales across the ‘out of market’ competitors would not have been substantially less anti-competitive than their purchase by Sports Direct. A Compass Lexecon team led by Neil Dryden advised Sports Direct. Compass Lexecon worked with Stephen Smith of RPC LLP in London.
TransWeb, a filtration media supplier, brought a Walker Process fraud claim again 3M, alleging that 3M attempted monopolization by seeking to enforce certain patents against TransWeb. Aside from 3M, TransWeb is the only other supplier of fluorinated filtration media that is used effectively in oil-resistant respirators certified by the National Institute for Occupational Safety and Health, and federally mandated for use certain workplaces. Compass Lexecon expert Brad Reiff testified on behalf of TransWeb regarding the competitive effects of 3M’s actions and damages. On November 26, 2012, a unanimous jury returned a verdict in favor of TransWeb on the attempted monopolization claims, and awarded treble past damages, including attorney’s fees incurred by TransWeb in defense of 3M’s patent claims. Dr. Reiff was supported by Kirupa Ramaiah in our Chicago office. Compass Lexecon worked with Harold Barza, Michael Williams and Adam Wolfson of Quinn Emanuel Urquhart & Sullivan, LLP.
Pearson Education, Inc., a publisher of textbooks and other educational material, has been subject to a series of individual copyright infringement claims based on alleged unlicensed use of photographs in its publications. Compass Lexecon affiliate Doug Lichtman and Compass Lexecon experts Lynette Neumann and Bradley Reiff are assisting Pearson in estimating actual damages and Pearson’s profit attributable to the alleged copyright infringement in a number of the individual cases brought against Pearson. The Compass Lexecon analysis has shown that the profits attributable to the alleged infringement are no more than the estimated actual damages. Since October 2012, Reiff has filed expert reports in several different cases, which have been dismissed or settled favorably for Pearson. Compass Lexecon is working with Brendan Kehoe of Pearson Education, and Kevin Fee and Jordana Rubel of Morgan, Lewis & Bockius LLP.
In May 2012, Sun Capital agreed to acquire Polycom’s SpectraLink business for $110 million. SpectraLink provided short-range wireless communication systems for large retailers, such as Home Depot and Lowe’s, and hospitals. After the transaction, Sun Capital claimed that Polycom had violated the terms of the purchase agreement by, among other things, failing to disclose that some of SpectraLink’s largest customers had notified Polycom they were going to discontinue their use of SpectraLink products.
Compass Lexecon was retained by John Hartmann of Kirkland & Ellis to work on behalf of Sun Capital in the matter, and Dan Fischel submitted an expert report quantifying the effect of losing various customers on SpectraLink’s value.
Following the submission of Professor Fischel’s report, Polycom agreed to dramatically reduce the purchase price to US$53 million plus other potential compensation, based on SpectraLink’s future EBITDA.
Professor Fischel was supported by a team headed up by Vince Warther and included Tim McAnally and Laurel Van Allen of Compass Lexecon’s Chicago office. Attorneys on the case, in addition to John Hartmann, included Dan Moore, Sarah Herlihy, and Dana Hill at Kirkland & Ellis; and William Lafferty at Morris, Nichols, Arsht & Tunnell.
In 2008, VOOM HD, an affiliate of AMC Networks Inc. and a former unit of Cablevision Systems Corporation, sued Dish Network after Dish Network terminated a 15-year contract to carry VOOM HD's programming. Compass Lexecon's Senior Managing Director Jon Orszag testified before a jury at the Supreme Court of the State of New York that VOOM HD suffered more than $2.4 billion in damages as a result of Dish Network's alleged breach of contract. Soon after Orszag's testimony, the parties reached a settlement of $700 million in cash and a long-term agreement for the Dish Network to carry a number of AMC Networks' programming channels, which third-party analysts viewed as conveying to AMC significantly more value than the cash part of the settlement.
The case attracted widespread national press and Wall Street analyst coverage. One analyst who watched the trial testimony concluded that Orszag was "a most credible witness in the eyes of the jury." Orszag was "extraordinarily well received" by the jurors and one juror stated to Bloomberg after the settlement that Orszag "made a good argument for the $2.4 billion damage award."
Compass Lexecon's economists and financial experts worked in several areas of this case. The group supporting Orszag on damages included Guillermo Israilevich, Maria Stoyadinova, Richard Mills, Kate Duan, and Hashim Chaudhry from the DC office. Rahul Sekhar, Rajiv Gokhale, Evan McKay, and Paul Eastwood supported the attorneys at trial, including assistance preparing plaintiffs' witnesses and assisting the client on cross-examination. They were supported in the Chicago office by Avisheh Mohsenin, Quinn Johnson, Andrew Lin, Saloni Shah, Margaret Hlebowitsh, and Hoang Lam. In addition, Compass Lexecon affiliate David Ricchiute submitted two reports rebutting testimony from the defense accounting expert. He was supported by Kevin Dages, Jennifer Milliron, and Evan McKay. Finally, as the trial went on, Arti Bhargava and Rohini Sadarangani, from the Oakland office, conducted an expedited audit of Dish Network's entire subscriber data warehouse.
Compass Lexecon's team worked with Orin Snyder, Chris Dusseault, Dace Martinez, Alma Asay, Paul Kremer, Thomas Dupree, Brian Ascher, Ilissa Samplin, Michelle Katz, and David Debold of Gibson, Dunn & Crutcher and Josh Dubin of Dubin Research & Consulting, who successfully represented VOOM HD.
Compass Lexecon's Professor Joseph P. Kalt served as the expert for claimant Occidental Petroleum Corporation, which last week obtained an arbitration award of US $1.77 billion (plus back interest) against the Republic of Ecuador (Ecuador). The award is reported to be the largest single bilateral investment treaty award ever issued by the International Centre for the Settlement of Investment Disputes (ICSID). The underlying dispute involved Occidental's claim that Ecuador's 2006 unilateral termination of the company's contracts to develop and produce oil resources located in a region of the country designated as Block 15 wrongfully deprived Occidental of the economic benefits that it would otherwise have earned under the contract. Based on a tribunal finding that Ecuador's actions were "tantamount to expropriation," a central issue in the dispute was the disparate economic valuations of Block 15 set forth by the two parties.
In its decision that overwhelmingly supported Claimant's positions on how best to assess the economic value of the Block 15 contract, the Tribunal repeatedly referenced its agreement with the opinions of Professor Kalt with regard to key valuation factors such as the use of discounted cash flow (DCF) as the appropriate and most reliable valuation methodology to in this case, estimates of potential reserves available to the company, risking of reserves and associated future cash flows, and assessment of actual market price expectations. Professor Kalt's Compass Lexecon team was led by Stephen Makowka in our Boston office and included Christina Gomez, Will Medina, and Nandana Thomas. Claimants were represented by David Rivkin at Debevoise & Plimpton LLP and Gaëtan J. Verhoosel at Covington & Burling LLP.
Beyond this case, Compass Lexecon's economists and financial experts have worked in all areas of international arbitration, delivering independent economic analysis, valuation opinions, damages assessments, regulatory opinions, expert reports and arbitration testimony. Our international arbitration team includes economists based in Europe, Latin America, and the United States. A number of members of our team are listed among the most renowned expert witnesses in Who's Who Legal. In addition, we have the capability of drawing upon an extensive network of specialist affiliates for additional capabilities in specific industries and niche areas, including within our corporate parent.
In September 2012, the European Commission cleared Universal’s acquisition of EMI’s recorded music business, subject to conditions. The merger brought together two of the four so-called global ‘major’ record companies, leaving only three majors. The clearance was made conditional upon the divestment of EMI’s Parlophone label and numerous other music assets including, EMI France and EMI’s classical music labels, Chrysalis and Mute. Jorge Padilla, Peter Davis, Nadine Watson, and Urs Haegler from Compass Lexecon assisted EMI and its owner Citigroup, as well as their respective legal advisers, Freshfields Bruckhaus Deringer LLP and Clifford Chance LLP. The Commission’s decision followed its in-depth (‘Phase II’) investigation, initiated due to concerns that, as a result of the merger, Universal would enjoy excessive market power vis-à-vis its direct customers that sell physical and digital recorded music at retail level (‘platforms’). The Commission’s view was based on the notion that access to additional repertoire becomes less and less valuable the wider the repertoire already available to the platform (substitutability between majors’ repertoires). In our response to the Commission’s Statement of Objections, Compass Lexecon provided a critique of the Commission’s econometric analysis and noted, among other things, that the empirical findings were instead consistent with the repertoires of the different recorded music companies being complementary. Compass Lexecon worked with Tony Reeves and his team at Clifford Chance LLP and Thomas Janssens and his team at Freshfields Bruckhaus Deringer LLP.
In September 2012, the U.S. Federal Trade Commission also announced that it had closed its investigation of the proposed acquisition by Universal of EMI’s recorded music business. Professor Daniel Rubinfeld, together with a Compass Lexecon team led by Duncan Cameron, was retained by counsel for Universal, Glenn Pomerantz and Stuart Senator of Munger, Tolles & Olson LLP and Bruce Hoffman of Hunton & Williams LLP, to conduct analyses of competition in the recorded music industry and to provide support for Universal’s efforts to secure regulatory approval. The Compass Lexecon team studied the recorded music industry and analyzed data on recorded music sales and determined that the proposed transaction would be unlikely to lessen competition or increase prices, primarily because there did not appear to be any meaningful pre-merger substitution between Universal and EMI and because the presence of piracy likely provides substantial discipline with respect to legitimate music prices. The Compass Lexecon team also concluded that the proposed transaction was unlikely to impact prices to consumers for nascent music streaming services, or the relative bargaining power and distribution of rents between record labels and streaming services. The FTC concluded that there was not sufficient evidence of head-to-head competition to conclude that the combination of Universal and EMI would substantially lessen competition. The FTC also determined that because each of the four major labels appeared to be necessary for a competitive streaming service, the repertoires of each of the major labels are likely to be complements rather than substitutes. The FTC stated that while it worked closely with the European Commission throughout the investigation, it reached different conclusions due to different evidence unique to each jurisdiction. However, the FTC noted that while it did not conclude that a remedy was needed to protect competition in the U.S., the remedy obtained by the European Commission would reduce concentration in the U.S. as well.
A Compass Lexecon team lead by Janusz Ordover and Andres Lerner assisted in obtaining U.S. Department of Justice approval for a joint venture between Verizon, Comcast, Time Warner Cable, Cox Communications, and Bright House Networks. The Compass Lexecon team included David Weiskopf, Nauman Ilias, Aren Megerdichian, Robert Oandasan, Jeff Tucker, and Matt Krietzberg. Compass Lexecon worked closely with counsel for each of the parties, including Janet McDavid of Hogan Lovells, Arthur Burke and Howard Shelanski of Davis Polk & Wardwell LLP, and Joseph Simons of Paul, Weiss, Rifkind, Wharton & Garrison LLP. The joint venture between the companies includes agency arrangements that allow Verizon Wireless and the cable partners to sell the services of the other party as well as a technology venture to develop and license technologies which integrate wireline and wireless services. Compass Lexecon experts, Janusz Ordover and Andres Lerner submitted several white papers and made presentations to the Department of Justice demonstrating that the transaction would not adversely affect competition in the provision of wireline services. Compass Lexecon’s analysis successfully showed that the sales commissions that Verizon Wireless would earn under the agency arrangement by selling cable services would not give Verizon incentives to raise the price of FiOS, despite its majority interest in Verizon Wireless and the fact that FiOS and the cable partners compete head-to-head in many geographic areas. Compass Lexecon’s analysis also showed that the transaction would not materially affect Verizon’s incentives to expand the FiOS footprint.
Another Compass Lexecon team, led by Mark Israel, supported by David Weiskopf, Jay Ezrielev, and Piyal Hyder presented analyses to the Federal Communications Commission (FCC) showing that the joint venture would not give the involved cable companies the incentive or ability to harm Verizon Wireless’ rivals through unattractive terms for backhaul or Wi-Fi offload services. Mark Israel submitted an expert report and, together with David Weiskopf, made a presentation to the FCC on these topics. Ultimately, the FCC placed no conditions on either backhaul or Wi-Fi offload services in its approval of the transaction. In addition to the attorneys listed above, this Compass Lexecon team worked closely with Michael Hammer, Brien Bell, and Mia Hayes of Willkie Farr & Gallagher LLP.
In April 2012, the European Commission cleared Sony’s acquisition of EMI’s music publishing business, subject to conditions. The merger creates the largest business of its kind and reduces the number of so-called global ‘major’ publishing companies from four to three. The clearance was made conditional upon the divestment of EMI’s publishing rights to four catalogues and the works of 12 contemporary artists. Jorge Padilla, Peter Davis, David Shaharudin, and Luke Ravenscroft from Compass Lexecon assisted EMI and its owner Citigroup, as well as their respective legal advisers, Freshfields Bruckhaus Deringer LLP and Clifford Chance LLP. The Commission’s decision followed its initial (‘Phase I’) investigation. The Commission was initially concerned about the merged entity’s ability to control the online licensing of chart hits in the European Economic Area. Post transaction, the merged entity would have fully or partially owned publishing rights in more than half of the chart hits in the UK and Ireland. However, Sony offered divestments of valuable and attractive catalogues, satisfying the Commission that the competitive dynamics in the online music publishing business would be maintained. Compass Lexecon worked with Tony Reeves and his team at Clifford Chance LLP and Thomas Janssens and his team at Freshfields Bruckhaus Deringer LLP.
In June 2012, the Federal Trade Commission cleared Sony’s acquisition of EMI’s music publishing business. The merger of the two company’s music publishing catalogs created a library of more than two million songs, making the combined entity the world’s largest music publisher. Janusz Ordover and Doug Fontaine from Compass Lexecon assisted Sony ATV (Sony’s music publishing division), as well as its counsel, Debbie Feinstein, Chester Choi, and Michael Bernstein of Arnold & Porter LLP. Bobby Willig, Jith Jayaratne and Yair Eilat assisted EMI and its counsel, Dale Collins, Tim Haney, and Jessica Delbaum of Shearman & Sterling LLP in this transaction. The FTC approved the merger once satisfied that the combination of the two enterprises likely would not harm competition in any of the numerous business segments in which music publishing rights are licensed. Compass Lexecon worked with counsel to prepare a white paper that addressed the principal competitive concerns raised by the FTC, namely the parties’ withdrawal of digital performance rights from the U.S. performing rights organizations and the parties’ possibly enhanced control over the publishing rights associated with “hit” songs. With regard to both concerns, economic analyses and arguments prepared by Compass Lexecon persuasively demonstrated that such concerns were unwarranted due to continuing robust competition among music publishers, including the need to both maintain and replenish relationships with songwriters, and the material bargaining leverage held by numerous digital service providers.
In 2006, Capital One Financial Corp acquired North Fork Bank for $13 billion. Pursuant to the acquisition, Capital One signed North Fork’s founder and CEO, John Kanas, and Vice Chairman John Bohlsen to employment agreements as senior executives. These agreements prohibited Mr. Kanas and Mr. Bohlsen from competing with Capital One for 5 years following their departure from the firm. After two years, Mr. Kanas and Mr. Bohlsen negotiated exits from Capital One whereby vesting on $40.9 million in restricted share grants were accelerated and the non-compete clauses revised with the terms set to expire in August 2012. Capital One sued Mr. Kanas and Mr. Bohlsen, alleging that prior to the expiration of the non-compete clauses, Defendants violated the agreements by acquiring BankUnited, Inc, making plans to expand BankUnited’s presence in the New York/New Jersey/Connecticut area, and competing directly with Capital One for customers and business including direct solicitation of former North Fork employees and customers who had remained with Capital One.
Compass Lexecon’s President, Professor Daniel Fischel submitted two reports and testified at deposition in support of Capital One. Professor Fischel testified on the harm to Capital One from business lost to BankUnited as well as potential additional business that would be lost absent an injunction holding Defendants to the terms of their non-compete agreements.
On June 19, 2012, Crain’s New York stated that “Capital One announced that Mr. Kanas and Mr. Bohlsen had waved the white flag,” and agreed to a settlement agreement. Pursuant to the settlement, Defendants agreed to pay $20 million in cash and agreed to abide by the terms of the non-competition agreements until January 31, 2013.
Compass Lexecon was retained by Orin Snyder and Howard Hogan of Gibson, Dunn, and Crutcher LLP and Professor Fischel was supported by Rahul Sekhar and Robin Stahl in our Chicago office.
Dr. Manuel A. Abdala and Professor Pablo T. Spiller provided expert testimony in an ICSID arbitration, retained by French investors led by EDF and SAUR. The outcome resulted in a US$208 million award against Argentina. An ICSID Tribunal found that Argentina’s denial to adjust properly tariffs substantially eroded the value of Claimants’ investments in electricity distribution. Abdala and Spiller demonstrated that the size of the investment had to be measured by the asset base, including the actual purchase price paid at privatization and not by the (lower) tag price set at the time of bid, as advocated by opposing experts. The Tribunal also dismissed the claim that Abdala and Spiller’s fair market valuation exercise was circular by virtue of anchoring value to the asset base. It found that the exercise was proper since it included a drop in value due to adverse market conditions, similar to those experienced by benchmark traded utilities. The Tribunal sided with Abdala and Spiller on electricity demand being highly inelastic, even in the presence of high but-for tariff increases. The Tribunal also endorsed Abdala and Spiller’s view that the spread on sovereign bonds could not be used as a valid measure of country risk premium, under the circumstances of their defaulted status.
COMPASS LEXECON EXPERT TESTIFIES
As widely reported in the domestic and international press, a three judge panel of the International Court of Arbitration recently awarded the Dow Chemical Company $2.16 billion in a dispute with Petrochemical Industries Company (Kuwait)("PIC"). Dow was successfully represented in the arbitration by Henry Weisburg, Jonathan Greenblatt, and Christopher Ryan and others of the law firm of Shearman & Sterling LLP. The award is reportedly one of the largest, if not the largest, arbitration award ever in a commercial dispute.
Compass Lexecon's President, Professor Daniel R. Fischel testified as an expert witness at the hearing as did others from our corporate parent FTI Consulting. Professor Fischel's testimony follows his testimony in five other recent major trial/arbitrations in the past year where tribunals ruled for Compass Lexecon's clients. These and other cases are described in our recent 2011 Newsletter.
The Dow arbitration proceeding arose from Kuwait's failure to close the K-Dow transaction in which Kuwait was to have contributed approximately $9 billion to Dow for a 50 percent stake in a petrochemical joint venture to be named K-Dow. Kuwait withdrew from the joint venture on December 28, 2008, a few days ahead of the planned January 2, 2009 closing. Dow expected to use a portion of the proceeds to finance its acquisition of Rohm & Haas, and after Kuwait's withdrawal from the K-Dow transaction, only managed to close the Rohm & Haas transaction on disadvantageous terms. Dow launched legal action against Kuwait in January 2009 challenging its right to withdraw from the K-Dow joint venture and claiming billions of dollars in damages.
Rajiv Gokhale, Mike Keable, Kevin Hartt and others from Compass Lexecon's Chicago office were also heavily involved in the case and provided valuable support.
On November 11, 2001, BankAtlantic Bancorp, Inc. and BB&T agreed to a transaction wherein BB&T was to acquire 100% of the equity of BankAtlantic, a federal savings bank, from BankAtlantic Bancorp. The holders of several series of trust preferred securities (“TruPS”) issued by BankAtlantic Bancorp sued to enjoin the transaction and enforce covenants that generally prohibit BankAtlantic Bancorp from transferring or selling all or substantially all of its assets without the debt being assumed by the purchaser. Compass Lexecon was retained to analyze the relevant economic evidence on the percentage of assets transferred and the effect of the proposed transaction on the TruPS holders.
After submitting a detailed expert report, Compass Lexecon’s President, Professor Daniel Fischel provided direct and rebuttal testimony at trial on the quantitative measures of the portion of assets that would be transferred in the transaction, and the market evidence as it related to the portion of assets transferred and to whether the amount of assets that would be left with BankAtlantic after the transaction would be enough to cover its obligations to the TruPS.
On February 27, 2012, Vice Chancellor J. Travis Laster of Delaware Chancery Court, permanently enjoined BankAtlantic Bancorp from consummating the sale to BB&T. Vice Chancellor Laster noted that even though the TruPS’ value almost doubled when the proposed transaction was announced, they still traded at under two-thirds of their par value, and found, consistent with Professor Fischel’s testimony and contrary to the testimony of Plaintiffs’ expert, that the transaction constituted a sale of all or substantially all of BankAtlantic Bancorp’s assets and therefore violated the applicable covenants. Compass Lexecon was retained by Jonathan Pickhardt and Richard Werder, Jr. at Quinn Emanuel Urquhart & Sullivan, LLP, who successfully represented the preferred security holders. Professor Fischel was supported by Rajiv Gokhale, Cliff Ang, and Paul Eastwood in our Chicago office.
In a case closely watched by the high technology industry, a California jury last week rejected Rambus, Inc.'s nearly $4 billion claim, before trebling, that Micron Technology Inc. and Hynix Semiconductor Inc. conspired to block the marketplace penetration of RDRAM, Rambus's proprietary DRAM technology, in favor of an alternative technology, SDRAM, and its succeeding generations. The result, which received widespread international coverage, was a complete defense victory.
Compass Lexecon was retained separately by each of two law firms to undertake independent economic assessments and provide trial testimony regarding liability and impact on behalf of Micron and Hynix.
Robert Willig, together with a Compass Lexecon team led by Doug Fontaine, Gilad Levin, Yair Eilat, and Rebecca Schindel, was retained by counsel for Micron - Bill Price, Jon Steiger, Robert Becher, and Kevin Teruya of Quinn Emanuel Urquhart & Sullivan, LLP - to develop a thorough economic assessment of the merits of Rambus' liability and impact claims. Professor Willig and his team analyzed Rambus's allegations in a rigorous framework focused on factors necessary for the successful formation and implementation of the alleged conspiracy. In his testimony, both written and at trial, Professor Willig emphasized that economic logic and the market data show that the concerted boycott as alleged by Rambus made no economic sense. To test empirically the merits of Rambus's claim, Professor Willig and his team analyzed voluminous DRAM transactional data and devised a series of statistical tests to compare DRAM pricing across technologies, time and suppliers. Professor Willig found the results inconsistent with a concerted scheme to boycott RDRAM through manipulation of its relative prices.
Janusz Ordover, along with a Compass Lexecon team led by Jith Jayaratne, Assaf Eilat, and Brianne Limber, was retained by counsel for Hynix - Tad Allan, Kenneth Nissly, Ken O'Rourke, and Susan van Keulen of O'Melveny & Myers - to develop a comprehensive economic framework to assess the merits of Rambus' claim that Hynix acted in concert with other DRAM manufacturers to disadvantage RDRAM. Professor Ordover and his Compass Lexecon team tested Rambus' claims regarding Hynix's pricing conduct through a comprehensive analysis of the RDRAM price data on record. They developed specific tests of Rambus' claims by focusing on the rates of decline of Hynix's RDRAM prices alone and relative to the prices of other DRAM technologies. The analyses demonstrated that Hynix's conduct was inconsistent with Rambus' allegations of RDRAM price manipulations and also inconsistent more generally with the cartel alleged by Rambus. Further, Professor Ordover and his team created detailed analyses of Hynix's RDRAM pricing to a major OEM that demonstrate that Hynix's RDRAM pricing conduct was consistent with unilateral behavior. In addition, the Compass Lexecon team worked closely with Hynix's counsel to provide extensive litigation support, including analyses of the massive data on the record used by Hynix counsel to create trial graphics and to develop litigation strategy.
The Tribune Co. undertook a two-step reorganization in 2007. In the first step, a newly formed ESOP purchased a portion of Tribune’s outstanding common shares financed by $8 billion of borrowings. In the second step, the remaining common shares were repurchased and Tribune became wholly owned by the ESOP and Tribune borrowed another $2.1 billion. On December 8, 2008, Tribune and certain subsidiaries filed voluntary petitions under Chapter 11 of the U.S. bankruptcy code. JP Morgan (JPM), one of Tribune’s principal lenders, represented by Davis Polk & Wardwell LLP retained Compass Lexecon’s President, Professor Daniel Fischel, to analyze Tribune’s solvency at both steps of its reorganization.
After the parties reached a tentative settlement, the court decided to hold a hearing in March 2011 because of objections raised. Two competing reorganization plans were presented at the hearing for confirmation, one supported by JPM and others, and a second supported by holders of certain bonds. Professor Fischel testified at the hearing, concluding that his study demonstrated that Tribune was solvent at both steps of its reorganization. After the hearing and subsequent briefing, Bankruptcy Judge Kevin J. Carey concluded in a lengthy opinion that the plan supported by JPM “should be approved because it is fair, reasonable, and in the best interest of the Debtor’s estates” but did not reach a final decision because of several remaining issues. Judge Carey cited and quoted favorably from Professor Fischel’s testimony in his opinion. We worked with Donald Bernstein, Dennis Glazer, Elliot Moskowitz, Sharon Katz, Lynn Busath, and others at Davis Polk who successfully represented JPM. Professor Fischel was supported by a team in our Chicago office including Rajiv Gokhale, Rahul Sekhar, Avisheh Mohsenin, Robin Stahl, Cliff Ang, Quinn Johnson, and Erika Morris.
In September 2011, a U.S. District Court judge enjoined the pilots union at US Airways from orchestrating an illegal job action aimed at disrupting the carrier’s flight operations. Compass Lexecon’s Darin Lee testified on behalf of US Airways at the hearing. Dr. Lee’s expert report and testimony analyzing the statistical impact of pilot job actions on the carriers’ on-time performance and cancellations were frequently cited in the Judge’s order. A Compass Lexecon team including Eric Amel, Respina Jani, Ethan Singer, and Diane Lee in our Boston office supported Dr. Lee. We worked with Robert Siegel, Mark Robertson, and Mike McGuinness at O’Melveny & Myers LLP, who successfully represented US Airways.
Compass Lexecon expert, Andres Chambouleyron, supported by Julian Delamer of Compass Lexecon’s Buenos Aires office, testified before a Tribunal at a recent ICSID Hearing. The Claimant alleged that The Republic of Peru had expropriated its investment in early 2005 by freezing its bank accounts due to a tax debt with the Government. Chambouleyron showed that damages to Claimant, a Chinese national (Mr. Tza Yap Shum) by The Republic of Peru, were less than US $1,000,000, while the opposing expert argued that damages were as high as US $20 million, based on a DCF analysis that incorporated the sharp increase in worldwide fish flour prices since mid 2005. The Tribunal rejected the opposing expert’s DCF model criticizing its use of hindsight information unknown at the time of expropriation and determining that it was too speculative given the company’s lack of a track record of profits prior to Peru’s measures. Instead, the Tribunal adopted Chambouleyron’s recommendation to use an “adjusted book value” approach. The Tribunal also followed Chambouleyron’s recommendation to use the 10-year US Treasury bond rates for purposes of pre-judgment interest calculations, based on the concept that Claimant was no longer exposed to commercial risks after its assets were expropriated. The Republic of Peru was represented by Benno Kimmelman, Stephen Jagusch, Anthony Sinclair and Nicole Duclos of Allen & Overy.
On May 5, 2011, the European Commission (EC) cleared without conditions the proposed combination of Citrovita (Votorantim group) and Citrosuco (Fisher group) to form the world’s largest wholesale supplier of orange juice. Unconditional clearance was awarded after an in-depth, Phase II review of the transaction by the EC. Compass Lexecon economists were retained by Marc Pittie of Bredin Prat for both parties. The Compass Lexecon team included David Sevy (Paris), Nadine Watson (Madrid) and Jeremiah Juts (Paris) and received support from Kirsten Edwards (London), Enrique Andreu (Madrid) and Catalina Campillo (Madrid). We provided economic analyses relating to market definition (at wholesale and retail levels) and potential unilateral effects. Statistical and econometric analyses emphasized the likely persistence of significant competitive constraints exerted by other products and by the two other main orange juice suppliers on the combined entity after the merger. In particular, we demonstrated that competitors would not be limited by capacity constraints to offset any declines in production volumes of the merged entity.
We were retained in this case by Gerson Zwifach and Paul Gaffney of Williams & Connolly LLP on behalf of their client, MedImmune. The case involved a suit by MedImmune against PDL claiming that it was overcharged and seeking recoupment of patent royalties previously paid on the respiratory drug Synapis. Compass Lexecon expert Daniel Rubinfeld filed four separate reports in the case on damages -- ranging from patent infringement to various breach-of-contract claims -- and was also deposed. The case recently settled for $92.5 million with MedImmune having no further obligation to make royalty payments. Professor Rubinfeld was supported by Daniel Ingberman who was assisted by Vijay Krishnan and Simon Rosen in the Oakland office.
Compass Lexecon expert Christopher Culp testified regarding the dynamics of the auction rate securities market before, during, and following the financial crisis at a FINRA arbitration hearing on behalf of Lehman Brothers, Inc. and certain of its employees. A former corporate client of Lehman’s asserted several causes of action against Lehman, including breach of contract, breach of fiduciary duty, and failure to supervise. Following a two-week hearing in Philadelphia, the three-member panel returned a decision denying Claimant’s claims in their entirety and ordering Claimant to pay the entirety of the forum fees. Compass Lexecon worked with Robert Gaffey, Philip Cook, and Sevan Ogulluk of Jones Day and Theodore Krebsbach and Theodore Snyder of Krebsbach & Snyder PC. Professor Culp was supported by Kevin Dages, George Hickey, Laura Yergesheva, and Matt Olson of Compass Lexecon’s Chicago office.
Compass Lexecon has been involved in the ongoing litigation related to the release of
genetically modified rice into the domestic US rice supply by Bayer CropSciences in 2006.
Hundreds of cases have been filed by US rice farmers and millers claiming they were damaged by the release because various countries curtailed rice imports in response to concerns that US rice might contain traces of genetically modified rice. We were retained by Bartlit Beck Herman Palenchar & Scott LLP on behalf of Bayer CropScience to estimate damages to US rice farmers and millers. Compass Lexecon experts and affiliates submitted reports in a number of cases, only one of which has gone to trial at this point. In that case, Compass Lexecon affiliate [Dr.] David K. A. Mordecai testified on behalf of Bayer, and the jury accepted his estimate of damages and rejected plaintiff’s experts’ estimate. Compass Lexecon experts Professor Daniel Fischel and Dr. Gustavo Bamberger have submitted reports in other cases, and Dr. Vincent Warther and Lynette Neumann headed up the support teams in the Chicago office. In connection with our work in these cases, we have worked with Mark Ferguson, Eric Olson, Glen Summers, John Hughes, Les Houtz and others at the Bartlit Beck firm.
Compass Lexecon expert Kenneth Grant was retained by a South American gas processor (Respondent) in an international arbitration matter initiated by an international oil company (Claimant). The dispute focused on the prices paid by Claimant for certain volumes of liquefied petroleum gas (LPG) purchased from Respondent under a long-term contract. Mr. Grant’s analysis demonstrated that Claimant’s theory of harm and measure of damages were at odds with the economics governing the supply of and demand for LPG, Claimant’s own actions, and the ex ante information available to market participants. The Tribunal, in finding for the Respondent, relied on the framework put forth by Mr. Grant and the Compass Lexecon team. In so doing, it denied Claimant’s harm of $90.4 million dollars plus interest, while awarding Respondent recovery of its legal costs. Mr. Grant was assisted by a team in our Boston office, including Nancy Bonn as well as others. We worked with Guy Miller Struve, James Kerr and Josh Liston from Davis Polk & Wardwell LLP who successfully defended the Claimant.
On January 21, 2011, the United States Court of Appeals for the Seventh Circuit in an
important ruling with broad implications vacated the district court’s order certifying a class in
Beesley et. al, v. International Paper Company, et. al. and remanded the case for further
proceedings consistent with its opinion. Among other things, the Court of Appeals found that in the context of a defined contribution plan “a fund that turns out to be an imprudent investment over a particular time period for one participant may be a fine investment for another participant who invests in the same fund over a slightly different period. If both are included in the same class, a conflict will result and class treatment will become untenable.” Compass Lexecon expert David Ross supported by Laurel Van Allen and Gina Vinogradsky of our Chicago office provided a report concerning class conflicts on behalf of the Defendants, who were represented by Greg Braden and others at Morgan, Lewis & Bockius LLP. Ross has provided a similar analysis in other ERISA cases around the country.
Cantor Fitzgerald, a financial services company which had offices in the World Trade Center, sued American Airlines, alleging negligence in permitting hijackers to board and capture one of the airplanes that destroyed the buildings on September 11, 2001. In May 2010, Cantor’s economic damages expert filed a report alleging that Cantor suffered lost profits of over $950 million due to declines in market share after the 9/11 attack. Counsel for American Airlines retained Compass Lexecon expert Professor Daniel Fischel to assess this damages claim. In January 2011, American Airlines won a motion for summary judgment which severely limited Cantor’s claim. In his ruling, Judge Alvin Hellerstein rejected Cantor’s damages claim, agreeing that Cantor’s expert’s methodology was unable to distinguish between lost profits caused by deaths and injuries of employees, which are not allowable under New York law, and losses caused by other factors. Professor Fischel was supported by Todd Kendall and others in Compass Lexecon’s Chicago office. We worked with Roger Podesta and Maura Kathleen Monaghan of Debevoise & Plimpton LLP, and Desmond T. Barry, Jr. and Michael J. Peterson of Condon & Forsyth LLP.
In this recent case, Chancellor William B. Chandler III of the Delaware Chancery Court ruled that the merger consideration and other aspects of the transactions that merged John Q. Hammons Hotels (JQH) into an independent third party acquisition company were fair. Defendants claimed that, among other things, Hammons and other directors breached their fiduciary duties by negotiating a merger that conferred special benefits on Hammons, the controlling shareholder of JQH and that the price paid to public shareholders was inadequate. Professor Kenneth Lehn, now a Compass Lexecon affiliate, was retained by Alan Stone of Milbank Tweed Hadley & McCloy LLP to analyze the valuation claims in the case and testify about these issues at trial. Chancellor Chandler described the valuation evidence as a “battle of the experts” and determined that Lehn’s opinion “was far more credible and persuasive than plaintiffs’” expert.
On December 30, 2010, in a decision scrutinized and commented upon by multiple
international organizations and government officials, Judge Victor Danilkin of Moscow
Khamovnichesky District Court found our clients Mikhail B. Khodorkovsky, once Russia’s
richest oil businessman, and his partner Platon L. Lebedev, the majority stakeholders in YUKOS, one of the largest Russian oil companies, guilty of embezzlement and money laundering under the Russian Federation Criminal Code. Over the past three years, a Compass Lexecon team, led by Kevin Dages and Laura Yergesheva, traveled to Russia and worked alongside an international team of defense attorneys in this matter, the most publicized white collar criminal case in modern Russian history.
The procedural irregularities of the case and the biased nature of the proceedings were widely commented on by major Western and Russian media. As a first hand observer, Kevin Dages was interviewed by the Wall Street Journal, Financial Times, and NPR. We worked with both the defendants’ U.S. defense team: Sanford Saunders and John Pappalardo of Greenberg Traurig LLP, Robert Andalman and Jeremy Margolis of Loeb & Loeb LLP, as well as with the
defendants’ Russian trial attorneys: Konstantin Rivkin and Vadim Kluvgant. Evan McKay and
Jessica Mandel of Compass Lexecon’s Chicago office also worked on this matter.
Compass Lexecon’s Janusz Ordover provided testimony on behalf of SoundExchange in a matter before the Copyright Review Board (CRB) to determine digital performance royalty rates for webcasters for the 2011-2015 period. Professor Ordover’s analysis and testimony focused on the question of whether rates already negotiated and agreed to by SoundExchange and certain webcasters, most notably the National Association of Broadcasters and Sirius-XM, offered probative evidence of the range of rates that would be obtained under the willing buyerwilling seller standard that the CRB, by statute, is required to follow. The CRB judges, citing Professor Ordover’s opinions favorably, determined a rate schedule roughly in-line with the schedule put forward by SoundExchange, and substantially greater than the rate put forward by the petitioner (Live365). Compass Lexecon was retained by David Handzo of Jenner & Block. Professor Ordover was assisted by Doug Fontaine and Assaf Eilat in Compass Lexecon’s Oakland office.
Compass Lexecon was retained by Russell Rowe of Rowelaw LLC on behalf of Noble Energy, Inc., Chesapeake Energy Corporation, and Encana Oil & Gas (USA) to provide independent analysis and respond to analyses submitted by other parties in a widely publicized proceeding investigating the reduction of emissions from coal fired power plants located in the Colorado Rockies’ Front Range. We conducted long-term resource planning analyses to evaluate the economics of future coal plant operations under a variety of input assumptions that tested the impact of coal plant shutdown versus continued plant operations with enhanced pollution emission reduction controls. These analyses assessed the economics of replacing older coal facilities with natural gas fired plants as well as renewable resources. We also analyzed and responded to the analyses submitted by the utility that owns the coal plants, as well as numerous intervenors. Compass Lexecon expert Joseph Cavicchi provided written and oral testimony clearly outlining the costs and benefits of the alternative plans put forth to reduce emissions. The proceeding concluded with a decision favorable to our clients that supported a pre-scheduled phasing out of older coal fired plants relying on natural gas resources for replacement electricity supply. Cavicchi was assisted by a team in the Boston office including David Molin and Daniel Meehan.
In what has been called one of the largest settlements in a derivative action, Pfizer agreed to set aside $75 million to fund new compliance efforts at Pfizer, including the creation of a new Board-level committee. Compass Lexecon was retained by Mark Lebovitch of Bernstein Litowitz Berger & Grossmann LLP to support the plaintiffs’ corporate governance expert, Professor Bernard Black of Northwestern Law School who analyzed the conduct of Pfizer’s Board of Directors in connection with its oversight of the company’s improper marketing and sales practices and internal controls. A team in Compass Lexecon’s Chicago office including Jessica Mandel, Rahul Sekhar and Alice Kaminski were involved in this matter.
Compass Lexecon represented DMX in two separate rate setting litigations in connection with license fees for public performances of music from affiliates of the performing rights organization Broadcast Music Inc. (BMI) and the American Society of Composers, Authors and Publishers (ASCAP). In a decision issued in July 2010, the BMI Rate Court set the blanket license at $18.91 per location, less than half of the fee that BMI requested, with the ability of DMX to further adjust downward the license fee based on the percentage of performances that are directly licensed. In a second decision issued in December 2010, the ASCAP Rate Court awarded DMX the rates that it sought from ASCAP, setting DMX’s blanket license fee at a rate that is substantially lower than the prevailing background music industry rate and providing DMX with an adjustable fee license structure so that DMX can further reduce its rates based on its direct licensing activity. Compass Lexecon expert Amy Candell in the Boston office provided written and oral testimony for DMX in both cases, with support from colleagues Nancy Bonn and Patrick Lavender. We worked with a team from Weil, Gotshal & Manges LLP including Bruce Rich now of Carter Ledyard & Milburn LLP and Benjamin Marks.
A motion for a temporary injunction was filed in the District Court of Harris County, Texas, 234th Judicial District, seeking to enjoin Blackstone Group, L.P.’s proposed buyout of Dynegy Inc. Dynegy shareholders claimed that the offer significantly undervalued the company. Compass Lexecon expert, Professor Daniel Fischel, was retained by counsel for Dynegy to analyze Dynegy’s share price movements prior to the announcement of the proposed buyout and whether the offer was beneficial to Dynegy shareholders. Professor Fischel provided deposition testimony and the case subsequently settled on extremely favorable terms prior to the injunction hearing. Rajiv Gokhale, George Hickey, and Peter Clayburgh of Compass Lexecon’s Chicago office assisted in the analysis. We worked with Charles Schwartz, Celso Gonzalez- Falla, Heather Lohman, and Christopher Bellotti of Skadden, Arps, Slate, Meagher & Flom LLP.
A Compass Lexecon team led by Mary Coleman assisted Simon Property Group's outside counsel, headed by Barry Nigro from Fried Frank, LLP, in obtaining FTC approval for Simon Property Group's acquisition of Prime Outlets. With the assistance of Jonathan Bowater and Loren Poulsen, Mary Coleman made several presentations to the Federal Trade Commission outlining the economic evidence showing that the acquisition would not likely have any anticompetitive effects in specific geographic markets where both companies currently owned outlet properties. The transaction was approved by the FTC subject to an agreed upon divestiture of either its Cincinnati Premium Outlet center located in Monroe, Ohio or its Prime Outlets-Jeffersonville outlet center in Jeffersonville, Ohio. In addition, Simon agreed to other conditions related to outlet malls serving the Chicago and Orlando markets.
Last Thursday, a federal court jury rejected a multi-billion dollar damage claim brought by Terra Firma, a British private equity firm, and returned a defense verdict on behalf of Citigroup, represented by Ted Wells, Jay Cohen, Jack Baughman and others at the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP. The trial, which attracted widespread publicity in both the United States and the United Kingdom, was presided over by the Honorable Judge Jed Rakoff in the Southern District of New York.
Terra Firma alleged that it purchased EMI, a music company now in financial distress, as a result of misrepresentations by Citigroup. Terra Firma originally sought over $8 billion in damages plus punitive damages and hired three experts who issued reports supporting this claim. Compass Lexecon’s President, Professor Daniel Fischel, was retained by Jay Cohen of Paul Weiss on behalf of Citigroup to analyze the relevant economic evidence and respond to Terra Firma's three experts. Professor Fischel issued a report which strongly criticized plaintiff's three experts and concluded that plaintiff suffered no damages. Both sides then filed Daubert motions. Judge Rakoff excluded two of the three plaintiff's experts and after a hearing, limited the testimony of the third which lowered the potential recoverable damages significantly. None of Professor Fischel's proposed testimony was excluded.
The case proceeded to trial where plaintiff's remaining expert testified that Terra Firma suffered $2 billion in damages. Professor Fischel then testified about the results of various economic studies which exposed the flaws in plaintiff's damage claim and further demonstrated that the proper measure of damages was zero. After closing arguments, the jury returned a complete defense verdict.
Professor Fischel was assisted by a team in Compass Lexecon's Chicago office including David Gross, Jessica Mandel, Rahul Sekhar, Laurel Van Allen, Jerry Lumer, Tim McAnally, Cliff Ang, David Strahlberg, Otto Hansen and Zach Frankel.
Compass Lexecon was retained by Don Kaplan of K&L Gates LLP on behalf of PPL Corporation to analyze the anti-trust implications of the PPL Corporation’s acquisition of E.ON US. We conducted antitrust analyses and provided support for other related filings to the Federal Energy Regulatory Commission. Compass Lexecon experts Joseph Cavicchi and Professor Joseph P. Kalt filed written testimony presenting our work. The acquisition was approved and closed within the year. The Compass Lexecon team included Howard Hsu in Boston and Patrick Lavender, now in New York.
In one of the most prominent cases arising from the financial crisis, the Securities and Exchange Commission sued Angelo Mozilo and other executives for securities fraud and insider trading related to their work running Countrywide Financial and its mortgage businesses. David Siegel, Dan Lefler, and Chad Elder at Irell & Manella LLP engaged Compass Lexecon affiliate Professor Kenneth Lehn to testify about materiality of alleged misstatements and Compass Lexecon affiliate Professor Christopher Culp to testify about the financial crisis and its effect on Countrywide’s operations. David Gross supervised a team at Compass Lexecon Chicago office, including Mike Keable, Peter Clayburgh, Andrea Neves, Sam Hollander, Laura Yergesheva, Anne Marie Yale, and George Hickey. After depositions, the Defendants settled with the SEC on the eve of trial on favorable terms that were widely described as a “slap on the wrist” in the press.
Compass Lexecon was retained by Tim Walsh of Steptoe & Johnson LLP on behalf of their client, Cumberland Farms, to analyze the potential competitive effects of Cumberland’s acquisition of Exxon Mobil’s gasoline retail and distribution assets on Long Island. Compass Lexecon’s analysis demonstrated that competition in retail gasoline was robust in the overlap areas. Compass Lexecon’s analysis was presented to the FTC in support of the transaction and the transaction cleared without a Second Request. A team in Compass Lexecon’s Chicago office including Rick Flyer, Colleen Loughlin and Dan Stone performed the economic analysis.
A federal court jury in San Francisco found that Compass Lexecon’s client, Michael Pattison, was not liable for alleged securities fraud, aiding and abetting securities fraud, or aiding and abetting the filing of misleading reports in connection with an alleged options backdating scheme. Compass Lexecon expert Professor Kenneth Lehn testified on behalf of Pattison regarding materiality, which jury polling after the trial confirmed was the single largest factor in the jury’s verdict. (The jury did find Pattison liable for books and records violations under rule 13b2-1 and 13b5, which do not have materiality as an element.) Pattison was represented by Patrick J. Richard and James H. Vorhis of Nossaman LLP. The Compass Lexecon team included David Ross, Jessica Mandel, Anne Marie Yale, Peter Clayburgh and Laura Yergesheva of our Chicago office.
In this securities fraud case, U.S District Judge Deborah Batts denied class certification
for AIG bonds and sharply limited the remainder of plaintiffs’ case due to the failure of plaintiffs
and their expert to demonstrate loss causation. Moreover, Judge Batts rejected plaintiffs’ claim that 10% is the generally accepted level in financial economics for event study statistical significance. Compass Lexecon expert Charles Cox testified on behalf of AIG that the economic evidence did not establish market efficiency for AIG bond markets and rebutted the testimony of plaintiffs’ expert on market efficiency, statistical significance, loss causation, and economic methodology. Judge Batts cited Dr. Cox’s testimony favorably in her opinion. Dr. Cox was supported by Laurel Van Allen in Compass Lexecon’s Chicago office. We worked with Daniel J. Leffell and Daniel J. Kramer of Paul, Weiss, Rifkind, Wharton & Garrison LLP.
In this nationally publicized case, eBay filed suit in Delaware Chancery Court against
craigslist and craigslist’s directors. eBay sought to require craigslist to rescind its poison pill and a share issuance to craigslist’s directors that diluted eBay’s ownership interest in the company. Compass Lexecon expert Daniel Fischel testified at deposition and filed an expert report that was admitted at trial demonstrating that the poison pill and share issuance caused disproportionate harm to eBay and disproportionate benefits to the craigslist directors. Chancellor William Chandler ordered craigslist to rescind the poison pill and share issuance, finding craigslist’s directors violated their fiduciary duties to eBay. Jerry Lumer, Rajiv Gokhale and Laurel Van Allen of Compass Lexecon’s Chicago office assisted in the analysis. We worked with William Lafferty of Morris, Nichols, Arsht & Tunnell LLP.
Compass Lexecon’s Janusz Ordover and Doug Fontaine advised outside counsel for Yahoo! with respect to the acquisition by Monster Worldwide, Inc. of Yahoo!'s online recruitment property, HotJobs. Professor Ordover and Mr. Fontaine assessed the extent of competition between generalist job boards like HotJobs and Monster and services employing alternative business models, including region specific, position specific, industry specific, and social networking. In gauging the likely effects of the transaction on competition and consumers, Professor Ordover and Mr. Fontaine specifically studied the inter-relationship between both sides of the market -- recruitment services for employers and tools for job seekers. Monster's acquisition of HotJobs was cleared by the FTC in August 2010. We were retained by Hanno Kaiser of Latham & Watkins LLP.
Prior to an anticipated acquisition offer from Broadcom, Emulex’s Board of Directors amended its bylaws to create a super-majority voting provision and amended poison pill. Broadcom commenced a tender offer for Emulex’s outstanding shares and filed suit in Delaware Chancery Court alleging that Emulex’s directors breached their fiduciary duties by instituting a series of defensive tactics. Compass Lexecon was retained by counsel for Broadcom, Ed Welch and Ed Micheletti of Skadden, Arps, Slate, Meagher & Flom LLP and Tom Beck and Greg Varallo of Richards, Layton & Finger, PA to analyze the purported rationale for Emulex’s defensive response to Broadcom’s Proposal and Tender Offer from an economics perspective. Compass Lexecon expert Daniel Fischel, supported by a team in our Chicago office, filed an expert report on Broadcom’s behalf prior to the case being settled.
The SEC alleged that Dell did not disclose the effect of discounts Dell received from Intel on the Company’s financial results and the effect that Dell’s sourcing of processors from AMD would have on these discounts and the Company’s future profitability. Compass Lexecon expert Allen Ferrell filed a report demonstrating that there was no systematic relationship between the size of the discounts received from Intel and Dell’s profits and that when Dell disclosed that it would begin sourcing processors from AMD, Dell’s stock price was not affected. Compass Lexecon experts Daniel Fischel and Kenneth Lehn also filed a report demonstrating that the alleged undisclosed information was publicly available and that additional disclosures of the Intel discounts would not have affected Dell’s stock price. The case settled on very favorable terms. Professors Ferrell, Fischel, and Lehn were assisted by David Gross and Mike Keable in Compass Lexecon’s Chicago office. We worked with John Savarese and Wayne Carlin of Wachtell, Lipton, Rosen & Katz and David Zornow and Charles Walker of Skadden, Arps, Slate, Meagher & Flom LLP.
On July 20, 2010, the U.S. Department of Transportation issued an order approving “an alliance among five members of ‘oneworld’ – American Airlines, British Airways, Iberia, Finnair, and Royal Jordanian” and granting them “antitrust immunity to implement those agreements.” This broad grant of antitrust immunity had been opposed by the U.S. Department of Justice, which submitted comments in the DOT docket arguing that “DOT should deny the broad requested immunity and instead grant a more limited immunity,” including the “carve-out” of several major routes out from the immunity grant. DOJ based its argument in large part on econometric studies that purported to demonstrate competitive harm and lack of competitive benefit from antitrust immunity. Compass Lexecon was retained by Roger Fones of Morrison & Foerster LLP on behalf of American Airlines, as well as counsel for American, to evaluate and respond to the DOJ studies. Compass Lexecon’s Professor Robert Willig, Mark Israel, and Bryan Keating submitted two econometric studies which refuted DOJ’s studies and demonstrated that oneworld antitrust immunity would, on balance, generate substantial pro-competitive benefits that would be largely undone if particular routes were carved out from the immunity grant. In its ruling, DOT “concluded that the joint venture, as well as the overall alliance, is, on balance, pro-competitive and that it is likely to generate substantial public benefits to the traveling and shipping public.” Based on this finding, DOT approved the request for antitrust immunity on all routes, with no carve-outs, subject only to a requirement that the parties transfer four takeoff and landing “slot pairs” to other airlines.
Compass Lexecon was retained by solicitor David Goddard of Thorndon Chambers and Tim Stephens of Simpson Grierson in New Zealand on behalf of their client OMV NZ Limited. OMV and the other two parties are joint venture partners in a gas field off the coast of New Zealand Todd Pohokura claimed that a contract between the parties was a violation of New Zealand competition law and asked for damages of approximately $320 million (NZ). Compass Lexecon expert Gustavo Bamberger of our Chicago office prepared a report and testified on behalf of OMV in the High Court of New Zealand. The judge agreed with our client that the contract did not violate New Zealand competition law and rejected Todd Pohokura’s damages claim. Lynette Neumann in the Chicago office assisted Dr. Bamberger.
In this case, the International Securities Exchange sought to offer options based on the Dow Jones Industrial Average and the S&P 500 without a license. Professor Dennis Carlton of Compass Lexecon acted as the economic expert for the CBOE, Dow Jones and McGraw-Hill who opposed this action, and offered testimony on the relevant economics of intellectual property rights. On July 8, 2010, Judge William Maki of the Circuit Court of Cook County granted summary judgment in favor of Compass Lexecon’s clients and enjoined the International Securities Exchange from offering such options without a license. We worked with Robert LoBue, Adeel Mangi and Elizabeth Shofner at Patterson Belknap Webb & Tyler LLP; Stacie Hartman and Paul Dengel at Schiff Hardin LLP; and Mark Fiore and Benjamin Marks at Weil, Gotshal & Manges LLP. David Ross, Allan Shampine and others in Compass Lexecon’s Chicago office worked with Professor Carlton on the case.
In a widely publicized criminal action against two former officers of Bristol Myers Squibb (BMS), the U.S. Department of Justice alleged that the defendants’ role in alleged channel stuffing caused significant losses for BMS shareholders. Daniel Fischel and Compass Lexecon were retained by David Zornow, Larry Spiegel and others at Skadden Arps to assist in defending Frederick Schiff, the former CFO of BMS. We analyzed the government’s allegations and also the valuation consequences of the allegedly false disclosures and the effects on future profits of allegedly stuffing the wholesale channel with product. Last June, the Justice Department effectively dropped the charges against Schiff and his co-defendant. David Ross, Jessica Mandel, and Laurel Van Allen in Compass Lexecon’s Chicago office worked on this matter with Professor Fischel.
In what started out as a dispute seeking clarification over certain terms of a licensing
agreement between U.S.-based ESCO Corporation and its Australian licensee (Bradken
Resources), Bradken asserted antitrust violations by ESCO and submitted a claim seeking
significant antitrust damages. Compass Lexecon was retained by ESCO and formed a team led by Professors Ben Klein and Kenneth Lehn. Professor Klein addressed liability issues related to Bradken’s antitrust claims and portions of Bradken’s antitrust damages analysis. Professor Lehn addressed elements of Bradken’s antitrust damages in a separate expert report. Following arbitration before the International Chamber of Commerce, the arbitrator rejected Bradken’s antitrust claims, affirmed ESCO’s contract positions, and awarded ESCO compensation for legal fees and costs. The arbitrator cited favorably the arguments and analyses in Professor Klein’s reports and testimony in his decision, and the outcome was a complete victory for ESCO. Compass Lexecon worked with Tim Muris and Christine Wilson of O’Melveny & Myers LLP and Randy Foster of Stoel Rives LLP. Michael Smith led the support teams for Professors Klein and Lehn out of Compass Lexecon’s Century City office.
In June 2010, Compass Lexecon expert Janusz Ordover testified at deposition on behalf
of Volkswagen and Audi on the appropriate valuation of a class action settlement involving
alleged defects that led to water ingress in certain vehicles. Professor Ordover testified that
plaintiffs’ expert overstated the settlement’s benefits to class members by double-counting the cost of Volkwagen’s and Audi’s repair of vehicles pursuant to the settlement and avoided future costs to class members as a result of the repairs. In a written opinion, Judge Patty Schwartz of the United State District Court of the District of New Jersey agreed, concluding that plaintiffs’ experts’ valuation included double-counting, among other errors, and dramatically reduced the estimated benefits from the settlement. Compass Lexecon worked with Jeffrey Chase and Daniel Gsovski of Herzfeld & Rubin P.C. Bradley Reiff and Wendy Petropoulos of Compass Lexecon’s Chicago office worked with Professor Ordover.
The Alaska Retirement Management Board sued Mercer for malpractice and fraud in its role as actuary to the pension and health care retirement plans for public employees and teachers in Alaska. Alaska alleged that Mercer grossly underestimated Alaska’s pension liabilities. Mercer responded that even if it made mistakes in its actuarial estimates, the Alaska retirement plans suffered no damages because actuarial estimates have no effect on the underlying liabilities of the plans. Lewis Clayton, Eric Stone, and Daniel Levi of Paul, Weiss, Rifkind, Wharton & Garrison LLP hired Compass Lexecon’s Daniel Fischel to testify on damages suffered by the plans. Professor Fischel and a team in Compass Lexecon’s Chicago office including David Gross and George Hickey rebutted Mercer’s arguments and estimated substantial damages from Mercer’s acts. Alaska and Mercer settled the case for $500 million – the largest settlement ever for a case of its kind.
Professor Daniel Rubinfeld led a Compass Lexecon team working on behalf of Google in
connection with its proposed acquisition of mobile-advertising network AdMob. Professor
Rubinfeld was supported by Jim Ratliff and Sarah Bartlett in the Oakland office. We submitted
white papers and Professor Rubinfeld had multiple in-person meetings with top FTC conomists and other decision-makers. In May 2010, the Federal Trade Commission voted 5-0 to close its investigation of the proposed acquisition, concluding that the deal “is unlikely to harm competition in the emerging market for mobile advertising networks.” The acquisition closed shortly afterward. Although the Commission believed the deal “raised serious antitrust issues,” these concerns “were overshadowed by recent development in the market,” such as Apple’s acquisition of mobile-advertising network Quattro and its subsequent development of the iAd mobile-advertising platform for the iPhone and iPad. We worked primarily with Dave Gelfand, George Cary, and Leah Brannon from Cleary Gottlieb Steen & Hamilton LLP, and with Bill Kolasky and Ali Stoeppelwerth at WilmerHale, both teams representing Google.
Plaintiff shareholders filed class action suits in both the Court of Chancery of the State of
Delaware and in Texas state court challenging the consideration and terms of the merger
agreement between Xerox Corporation and Affiliated Computer Services, Inc. (ACS) in Xerox’s
$6.4 billion acquisition of ACS. Compass Lexecon expert Daniel R. Fischel submitted an initial expert report and rebuttal report to the Delaware court on behalf of the Special Committee of the ACS board of directors, demonstrating that the economic evidence did not support plaintiffs’ claims and rebutting the claims of plaintiffs’ expert about the fairness of the consideration. Compass Lexecon expert Charles C. Cox submitted an expert report on behalf of Xerox and ACS to the Texas court rebutting the claims of plaintiffs’ expert about the fairness of the deal. On May 19, 2010, Xerox disclosed that it had resolved the Delaware and Texas litigation for a combined settlement equal to a small fraction of the amount sought by Plaintiffs. David Ross, Jessica Mandel, Laurel Van Allen, Jonathan Polonsky, and David Strahlberg of Compass Lexecon’s Chicago office assisted in the analysis. We worked with Kevin Abrams and Tom Bayliss of Abrams & Bayliss LLP and Gary Bornstein of Cravath, Swaine & Moore LLP.
In May 2010, our client Volkswagen settled a class action case involving allegedly defective window regulators (on certain models windows would spontaneously fail, becoming stuck and sometimes slipping down). Plaintiffs demanded approximately $40 million based on out-of- pocket damages and a “Benefit of the Bargain” theory. Compass Lexecon expert Janusz Ordover testified at deposition that the correct reasonable damages were approximately $900,000. The parties settled on terms where VW is estimated to pay out an amount less than Professor Ordover’s damages estimate. Compass Lexecon worked with Jeffrey Chase and Daniel Gsovski of Herzfeld & Rubin, P.C. Bradley Reiff and Wendy Petropoulos of Compass Lexecon’s Chicago office worked with Professor Ordover.
Plaintiffs filed a case under ERISA alleging breaches of fiduciary duties by Baxter and several related defendants. Compass Lexecon expert Daniel Fischel filed reports on behalf of the defendants demonstrating that the economic evidence is inconsistent with plaintiffs’ claim that the Baxter Common Stock Fund was an imprudent investment and that plaintiffs’ experts’ causation and damages analyses were flawed. On May 3, 2010, Judge Gottschall of the U.S. District Court for the Northern District of Illinois Eastern Division granted defendants’ motion for summary judgment and denied plaintiffs’ motion for partial summary judgment. A team from our Chicago office including Mike Keable, Kevin Dages, Jen Milliron, Gina Vinogradsky, Cliff Ang, and Evan McKay worked on the case. We worked with Matt Kipp, Donna McDevitt, and Andrew Fuchs of Skadden, Arps, Slate, Meagher & Flom LLP.
Equinix, Inc., a provider of global data center services, sought to acquire Switch & Data Facilities Company, Inc., a leading provider of data center and Internet exchange services. Equinix and its counsel, Art Burke and Edward Moss of Davis Polk & Wardwell LLP, retained Compass Lexecon to provide economic analysis of the transaction. Janusz Ordover, Jon Orszag, Kevin Green, and Lacey Plache, along a team from the Los Angeles office, helped the parties receive regulatory clearances from the DOJ. Compass Lexecon performed a wide ranging analysis of the competitive effects of the transaction. We provided analysis in several written submissions to the DOJ and met with DOJ staff to present our empirical analysis. This transaction was one of the first to be approved following the release of the newly revised Horizontal Merger Guidelines.
Merrill & Ring Forestry, a timberland owner in British Columbia, brought an arbitration seeking damages against Canada for violation of investor protections accorded under Chapter 11 of NAFTA. David Reishus of Compass Lexecon’s Boston office testified on behalf of Canadan regarding the economic requirements for the determination of damages. In March, the ICSID tribunal split on whether NAFTA had been violated, but unanimously found that there was no demonstration of past or future damages. We worked directly for the Canadian Trade Law Bureau of the Department of Foreign Affairs and International Trade, including Sylvie Tabet, Scott Little, and Rahool Watchmaker.
On March 29, 2010, Cisco Systems, Inc. received approval from the European Commission for its proposed acquisition of Tandberg ASA, the largest provider of videoconferencing equipment in the world. On that same day, the Department of Justice announced that it would not challenge the acquisition in light of commitments Cisco made to the EC to facilitate interoperability between Cisco’s telepresence products and those of other companies. Professor Richard Gilbert led Compass Lexecon’s efforts to help Cisco gain antitrust approvals for this deal in the US and EU. Professor Gilbert was supported by Jim Ratliff, Bret Dickey, and Kun Huang in the Oakland office. The Compass Lexecon team prepared multiple submissions to both the DOJ and DG Comp stressing the dynamic nature of the video collaboration industry. Indeed it was the “evolving nature of the videoconferencing market” that was primarily cited by the Antitrust Division in support of its conclusion that the deal would not likely be anticompetitive. The transaction closed on April 18, 2010. We worked primarily with Gil Ohana of Cisco, and Sven Voelcker, Hartmut Schneider, Cormac O’Daly, and Jim Lowe at WilmerHale.
Compass Lexecon experts, Professors Dennis Carlton and Daniel Rubinfeld were retained by Katherine Forrest, of Cravath, Swaine & Moore LLP (now at the DOJ) and Paul Yde of Freshfields Bruckhaus Deringer LLP to advise United Airlines and Continental Airlines on their merger. Professors Carlton and Rubinfeld, along with Compass Lexecon’s Theresa Sullivan, Steven Peterson, and Bryan Keating, evaluated the competitive effects and consumer benefits arising from the merger, which was cleared by the U.S. Department of Justice. Professor Rubinfeld was also retained in a private antitrust action contesting the airlines’ planned merger. Professor Rubinfeld testified in a preliminary injunction hearing in Federal Court in California on the competitive effects and consumer benefits of the merger. The judge refused to issue the preliminary injunction sought by the plaintiffs and the merger was completed on schedule. Professor Rubinfeld was assisted by Theresa Sullivan, Steven Peterson, and Bryan Keating.
Compass Lexecon advised two of the nation’s largest independent PPO networks, MultiPlan, Inc. and Viant, Inc. in securing approval of their proposed merger. Compass Lexecon conducted extensive analyses of both the competitive effects and the efficiencies of the deal, including efficiencies related to the impact of the merged company’s enhanced bargaining power on the outcome of negotiations with medical providers. Over a period of six months, Compass Lexecon submitted multiple white papers to the government that were critical in securing regulatory approval. The U.S. Department of Justice informed the parties recently that the investigation had been closed. We were retained by both MultiPlan (Marc Williamson and Jennifer Giordano of Latham & Watkins LLP and Joe Sims of Jones Day) and Viant (Mit Spears and John Carroll of Ropes & Gray LLP). The D.C./Boston based Compass Lexecon team included Jon Orszag, Theresa Sullivan, Amy Candell, Antara Dutta, Diane Lee, William Medina, and Katie Milliken.
Compass Lexecon worked on the successful acquisition by Pepsico of its two largest bottlers, Pepsi Bottling Group and Pepsi Americas. After more than six months of intense examination by the FTC, the nearly $8 billion dollar deal was approved in late February 2010. Compass Lexecon performed extensive theoretical and empirical analyses including modeling a complicated double marginalization problem. Our work was critical in obtaining FTC approval. We worked with Michael Sohn now of Davis Polk & Wardwell LLP and Deborah Feinstein of Arnold & Porter LLP. Compass Lexecon's team included Dennis Carlton, Mark Israel, Nauman Ilias, Jonathan Bowater, and Jeff Tucker of our D.C. office.
In 2010, the US Department of Justice and the European Commission approved the proposed agreement between Microsoft and Yahoo! to combine their Internet search and paid search advertising businesses. Compass Lexecon teams were retained by both Yahoo! and Microsoft to provide antitrust consulting services before the American and European regulators. Compass Lexecon conducted extensive analyses related to the potential competitive effects of the proposed agreement (including theoretical and empirical analyses of advertiser participation in search advertising auctions), conducted large scale and detailed data processing to comply with requests for information from regulators in the US and Europe, and assisted with the Form CO for submission to the European Commission. We worked with both US- and Europe-based counsel, including Michael Weiner and Alec Chang of Skadden, Arps, Slate, Meagher & Flom LLP, Simon Baxter now also at Skadden, and Frances Dethmers of Clifford Chance LLP for Yahoo!; and Rick Rule, Jonathan Kanter, and Joseph Bial of Cadwalader, Wickersham & Taft LLP and Jonas Koponen of Linklaters LLP for Microsoft. Compass Lexecon’s Yahoo! team included Robert Willig, Jon Orszag, Glenn Mitchell, Lacey Plache, Jay Ezrielev, Yair Eilat, YoungBae Moon, and other staff in Los Angeles, D.C., and San Francisco. Our Microsoft team included Dennis Carlton, Rick Flyer, Colleen Loughlin, Eugene Orlov, Todd Kendall, and a team in the Chicago office.
Compass Lexecon expert Professor Joseph Kalt provided written and oral testimony on behalf of a joint venture of prominent Western Australia natural gas producers in an arbitration to determine the price under a high-volume, long-term natural gas contract. The North West Shelf Joint Venture (NWSJV), consisting of major natural gas producers in Western Australia, invoked the price review clause under its agreement with the region’s primary domestic reseller, Alinta. Professor Kalt assessed the fair market value of gas in Western Australia. He found that supply and demand conditions for natural gas in Western Australia were tight and that the price existing under the contract greatly undervalued natural gas compared to contemporaneous transactions in the marketplace. Professor Kalt presented oral testimony before the arbitrator and the arbitrator issued an award reflective of the economics put forth by Professor Kalt. The case was subsequently settled. The settlement provides Compass Lexecon’s clients with substantial payments of many millions of dollars in arrears, and with a rising price path going forward under the contract. Compass Lexecon’s clients were Woodside Energy, BHP Billiton, BP Developments, Chevron Australia, and Shell Development which were represented by a team of solicitors led by Paul Evans of Freehills and barrister Christopher Zelestis of Francis Burt Chambers. Professor Kalt was primarily assisted by Eric Henson, Sean Small, Diane Lee, and Marc Wiesenberger.
Quicksilver alleged that BreitBurn made misleading statements and material omissions to
induce Quicksilver to exchange its assets for cash and BreitBurn units. After the exchange,
BreitBurn adopted an amendment to its partnership agreement that gave its unitholders the right to elect directors of BreitBurn’s general partner and placed a cap on the number of BreitBurn units any entity or group could vote. Quicksilver claimed the cap served no rational business purpose and was only adopted to entrench BreitBurn’s directors. Compass Lexecon expert Daniel Fischel filed an expert report demonstrating that Quicksilver failed to establish the existence of any damages and that there were legitimate economic reasons for the cap. The case settled on very favorable terms. Fischel was assisted by Jerry Lumer, Vince Warther and Avisheh Mohsenin of Compass Lexecon’s Chicago office. We worked with Harry Reasoner and Jennifer Poppe of Vinson & Elkins LLP.
Compass Lexecon’s Daniel Fischel was retained by the U.S. Department of Justice to rebut a nine figure lost profits damage claim brought by a savings and loan following the decision by the U.S. Supreme Court in U.S. v. Winstar. At trial, Professor Fischel demonstrated that plaintiff’s lost profits damage claim was conceptually flawed because it incorrectly equated increased size with increased profitability when the reverse was more likely to be true under the facts and circumstances of the case. Professor Fischel further demonstrated that the key assumptions underlying plaintiff’s expert’s analysis about size, composition of assets, and the profitability of those assets were speculative, implausible, and contradicted by the relevant economic evidence. Professor Fischel concluded that Northeast suffered no lost profits damages and, if anything, was benefitted by the government’s breach. Judge Mary Ellen Williams of the Federal Court of Claims rejected plaintiff’s lost profits damage claim in its entirety and awarded no damages. Judge Williams’ decision was based in substantial part on Professor Fischel’s trial testimony which she discussed extensively and cited favorably in her opinion. Judge Williams also relied on and quoted from earlier Winstar cases where other courts similarly relied on Professor Fischel’s testimony in reaching favorable results for the government. Professor Fischel was assisted by David Ross, Jessica Mandel and others in Compass Lexecon's Chicago office.
Last February, Boston Scientific agreed to pay $1.725 billion to our client, a unit of Johnson & Johnson, to settle claims of infringement of patents for coronary stents. As reported in The New York Times, this was “the largest sum ever paid to resolve patent litigation over a medical device.” Compass Lexecon’s Daniel Fischel provided two Expert Reports and deposition testimony during the extended dispute, and Rajiv Gokhale issued a Declaration. Professor Fischel estimated Boston Scientific’s profits from infringement and also opined that the benefits of the infringement to Boston Scientific and its executives justified the possibility of an enhanced penalty for willful infringement. Gokhale filed a Declaration focused on Boston Scientific’s financial condition. We were retained by and worked with Greg Diskant and Kim Landsman of Patterson Belknap Webb & Tyler LLP. The Compass Lexecon team in Chicago included Brad Reiff and Tim Guimond.
In early 2009, the U.S. Department of Justice began an investigation of alleged collusion
between wireless carriers in setting text messaging fees. Compass Lexecon assisted Verizon
Wireless in evaluating these claims. Professor Dennis Carlton, supported by a team in Compass Lexecon’s Chicago office including Hal Sider, Allan Shampine and Todd Kendall, presented an analysis to the Department of Justice which demonstrated that Verizon Wireless’ pricing was inconsistent with collusive behavior. The analysis also showed that average per-text rates had fallen substantially during the alleged conspiracy period and demonstrated the consumer benefits resulting from Verizon Wireless’ pricing practices. The Department of Justice closed its investigation without taking any action. We worked with John Thorne and Rob Griffen, inhouse counsel for Verizon.
Compass Lexecon was retained by Cliff Thau, Steven Paradise, and Hilary Preston of Vinson & Elkins on behalf of their client Stone Energy Corp. in a case involving the company’s revision of its proved oil and gas reserves. Compass Lexecon expert Daniel Fischel filed an expert report in the case, concluding that plaintiffs’ experts had failed to establish that there was any stock price decline caused by defendants’ disclosure of the reserve revisions. The case settled on favorable terms for our client. Fischel was assisted by Mike Keable, Peter Clayburgh, Cliff Ang, Jerry Lumer, and others in the Chicago office.
Dr. Atanu Saha, Senior Vice President and Head of Compass Lexecon’s New York Office testified at trial on behalf of defendants on both liability and damages issues in a hedge fund valuation dispute in Delaware Chancery Court which resulted in a written opinion granting our clients a complete victory. A team of economists from Compass Lexecon’s New York office led by Vice President Alex Rinaudo assisted Dr. Saha. We worked with a team from Paul, Weiss, Rifkind, Wharton & Garrison LLP, led by Bruce Birenboim, on all phases of pretrial and trial practice including review of pretrial discovery, development of economic and financial models, critique of analyses by opposing expert and preparation of testimony.
Compass Lexecon expert Janusz Ordover was retained by Doak Bishop, John Bowman, and Kevin Sullivan of King & Spalding LLP on behalf of their client British Petroleum. British Petroleum asserted that Repsol failed to share incremental profits of certain sales of LNG produced by their joint investments in Trinidad & Tobago. Repsol responded, in part, that the requirement that it share incremental profits with British Petroleum violated EC competition law and United States antitrust law. Professor Ordover, supported by Steven Peterson and a team in Compass Lexecon’s Cambridge office, testified that the profit sharing provisions of BPA and Repsol’s agreement did not threaten competition or violate EC or US competition law. The tribunal agreed, finding that BPA and Repsol’s agreement is enforceable and that Repsol violated the agreement.
Professor Francis E. McGovern of Duke University School of Law, in his role as the Independent Distribution Consultant for several securities and market timing settlement distribution funds, retained Compass Lexecon experts Jon Orszag, Arti Bhargava, and Yair Eilat to provide a wide range of consulting services which included developing economic models, equitable distribution methodologies, and the plans of distribution for these settlement funds. To date, the Compass Lexecon team has worked with Professor McGovern on the following settlement funds: Global Research Analyst Settlement; Banc of America Securities; HealthSouth; Bear Stearns & Co.; Prudential Securities, Inc.; Citigroup Global Markets Inc.; and most recently, American Skandia Investment Services, Inc. Compass Lexecon also has significant expertise in the development and execution of market timing settlement distribution plans. To date, this Compass Lexecon team developed four distribution plans associated with market timing settlements.
In a proceeding before the American Arbitration Association, we worked with Rob Cohen, Joe Serino, David Flugman, and Melody Wells of Kirkland & Ellis LLP on behalf of Tyson Partners L.P. (formerly known as Altaris Partners LLC). Tyson Partners claimed, among other things, that AIG Global Asset Management Holdings Corp. failed to fulfill its funding obligations under the parties’ joint venture contract. Compass Lexecon expert David Mordecai, working closely with Vince Warther of Compass Lexecon’s Chicago office, testified regarding industry practices with regard to such funding obligations as well as the economics of those obligations. The arbitration panel found for Tyson Partners on all claims and awarded all costs and attorneys’ fees.
On January 11, 2010, relying heavily on the testimony of Compass Lexecon expert Joseph Kalt, Connecticut Superior Court Judge J. Cremins issued a Memorandum of Decision in
Wyatt Energy, Inc. v. Motiva Enterprises, LLC in favor of our client, Motiva. Wyatt had
unilaterally terminated a contract by which it leased a petroleum products terminal in New
Haven, Connecticut to Motiva. Motiva claimed the termination was a wrongful breach of the
contract and that it was entitled to damages. Wyatt claimed the termination was justified by
Motiva’s alleged violation of antitrust law. Plaintiff’s expert testified that Motiva had acquired
monopoly power in the market for terminal services in Connecticut as a result of Motiva’s
acquisition of a petroleum products terminal in New Haven from Cargill. Professor Kalt
provided written and oral testimony at trial explaining that Wyatt’s expert had incorrectly
defined the relevant market and had improperly ignored the various institutional arrangements
that provide competitive discipline in the market. Professor Kalt concluded that Motiva’s
acquisition of the Cargill terminal did not create market power. After citing extensively from
Professor Kalt’s testimony, the Memorandum of Decision states: “With respect to the attempted monopolization claim, the court adopts Kalt’s testimony … and finds that Motiva’s acquisition of the Cargill terminal did not create a dangerous probability that Motiva would achieve market power in the relevant product and geographic market.” Professor Kalt was supported by Charles Augustine and a team in Compass Lexecon’s Boston office. Compass Lexecon was retained by Paul Sanson of Shipman & Goodwin LLP.
Compass Lexecon expert Jon Orszag, supported by Jay Ezrielev, Elizabeth Wang, Loren Poulsen, and Bryan Keating of Compass Lexecon’s Washington and Cambridge offices, testified on economic issues at an FCC hearing in front of the administrative law judge on behalf of Comcast in a case involving a carriage complaint brought by TCR Sports Broadcasting Holding LLP, which does business as the Mid-Atlantic Sports Network (MASN), against Comcast. MASN alleged that Comcast’s lack of carriage of MASN in certain geographic areas was discriminatory and sought to compel Comcast to carry MASN in those areas on a highly penetrated tier. The FCC Enforcement Bureau concluded that Comcast had not discriminated against MASN based on affiliation. That decision led Multichannel News to write that, “MASN Whiffs Against Comcast.” The parties ultimately settled the dispute on favorable terms to Comcast. We worked with various members of Comcast’s legal team, including Arthur Burke of Davis Polk & Wardwell LLP; Robert Kirk, Michael Sullivan, and Andy Tollin of Wilkinson Barker Knauer, LLP; and Mike Hammer of Willkie Farr & Gallagher LLP.
A Compass Lexecon team headed by Professor Dennis Carlton and Rick Flyer assisted Avaya's outside counsel, headed by Steve Newborn from Weil, Gotshal & Manges LLP, in Avaya's acquisition of Nortel Networks. Rick Flyer and Allan Shampine of Compass Lexecon made several presentations to the U.S. Department of Justice outlining the econometric evidence showing that the acquisition likely would not have any anticompetitive effects, despite the fact that each company had a high share of telecommunication equipment sales in both North America and Europe. Compass Lexecon's analyses were also presented to the EU competition authorities. The transaction was then approved by both the North American and EU competition authorities within a few months of being announced.
Professor Dennis Carlton submitted a statement to the FTC and U.S. Department of Justice regarding possible revisions to the Horizontal Merger Guidelines. His statement was sponsored by several firms and organizations including the National Association of Manufacturers, Microsoft, AT&T, Verizon, and the Financial Services Roundtable. At the invitation of the Department of Justice and the FTC, Professor Carlton appeared at hearings in December where he presented some of his views. The ABA publication, Antitrust, conducted an extensive interview with him about the Guidelines and published the interview in its Nov/Dec issue.
Overstock.com sued our clients Copper River Partners and various entities, claiming that they worked in concert to harm Overstock.com and enrich themselves, including by depressing the company’s stock price through issuance of allegedly false analyst reports and selling the stock short. Compass Lexecon expert Daniel Fischel with assistance from Mike Keable, Vince Warther, Cliff Ang, and others in the Chicago office, prepared a detailed analysis demonstrating that other factors and not the short sellers caused Overstock.com’s share price decline. The case settled on very favorable terms for a nominal amount. We worked with Fred Norton of Boies, Schiller & Flexner LLP.
In a matter submitted to FINRA arbitration, claimant Ramius Capital Group, LLC alleged fraud through disclosure defects in connection with its purchase of collateralized debt obligations. Compass Lexecon expert Charles Cox testified on behalf of Ramius regarding liability, materiality, and scienter. The arbitration panel agreed with Cox’s testimony and awarded damages to Ramius. Laurel Van Allen of Compass Lexecon’s Chicago office assisted with the analysis. We worked with Philippe Selendy of Quinn Emanuel Urquhart Oliver & Hedges, LLP.
Meg Guerin-Calvert, supported by a Compass Lexecon team including Theresa Sullivan,
Jeff Raileanu, Katie Milliken, and Matt Schmitt provided economic analysis in the proposed
acquisition of MedServe by Stericycle in the medical waste collection, transportation, and
treatment industry. The focus of the work was on relevant geographic markets, competitors, and entry potential in the West and Midwest. Compass Lexecon supported the parties in close coordination with their counsel throughout the second-request process, contributed analysis to written submissions to the Department of Justice, and participated in presentations before the agency. The deal was cleared subject to the divestiture of certain MedServe assets (a Kansas treatment facility and related assets). Stericycle was represented by David Clanton, David Laing, and Brian Burke of Baker & McKenzie, and MedServe was represented by Sean Boland and Allen Bachman of Howrey LLP.
Plaintiff, City of St. Clair Shores Police and Fire Retirement System, filed a class action suit in Texas state court challenging the merger agreement between Xerox Corporation and Affiliated Computer Services, Inc. (ACS). Compass Lexecon expert Charles Cox submitted a report on behalf of Xerox and ACS rebutting the claims of plaintiffs’ expert about the fairness of the deal. We also provided support for Yale Law School Professor Jonathan Macey who analyzed the fairness of various deal provisions. The case was settled on terms which did not require the payment of any money or any delay in the timing of the deal. Laurel Van Allen, Jonathan Polonsky, and David Strahlberg of Compass Lexecon’s Chicago office assisted in the analysis. We worked with Gary Bornstein of Cravath, Swaine & Moore LLP and Kevin Abrams and Tom Bayliss of Abrams & Bayliss LLP.
On November 20, 2009, a jury in the United States District Court for the Western District of Wisconsin awarded Compass Lexecon client Ricoh $14.5 million in damages in a patent infringement lawsuit against Quanta Computer and Quanta Storage. The case involved patents on recordable DVD and CD drives, primarily used in notebook computers. The trial was bifurcated and in the initial phase of the trial the jury found that the patents were valid and infringed by Defendants. David Gross testified as the only Ricoh witness during the damages phase of the case. He provided a range of damages estimates with a lower bound of $11 million. Defendants called multiple damages witnesses including an economist who estimated an upper bound for damages of $3 million. The jury awarded Ricoh $14.5 million. Ricoh was represented by J.C. Rozendaal and Michael Guzman of Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC.
Compass Lexecon expert Joseph Kalt, supported by Nancy Bonn and a team in our Cambridge, MA office, was retained by attorneys for claimants, Hyundai Heavy Industries, Co. and a group of Hyundai related entities and shareholders in an ICC arbitration in 2008 involving a breach of contract and other claims related to a large Korean petroleum refining and marketing company. Claimants asserted that the respondents underpaid dividends as described in the shareholder’s agreement. Dr. Kalt examined the economics of the decision to underpay dividends in order to finance two expansion projects being undertaken by the company. Dr. Kalt concluded that paying the dividends as described under the agreement would have had no material effect on the company’s ability to obtain financing for these projects or on the financial condition of the company. The ICC agreed with Dr. Kalt’s conclusions stating that underpaying the dividend “…was not justified by the need for the financing of the Projects in either 2006 or 2007.” Dr. Kalt provided written and oral testimony before the arbiter, and the ICC ruled that the respondents breached the agreement by refusing to pay the appropriate dividends. The ICC award was worth hundreds of millions of dollars to Hyundai. We worked with David Rivkin and Christopher Tahbaz of Debevoise & Plimpton LLP, and Kevin Kim of Bae, Kim and Lee LLC.
Jonathan Orszag, Robert Willig, and Loren Poulsen of Compass Lexecon were retained by Rich Rosen and Will Mudge of Arnold & Porter LLP and Randy Smith of Crowell & Moring LLP to advise AT&T on its merger with Centennial. Orszag, Willig, and Poulsen submitted testimony to the FCC about the economic effects of the proposed merger, concluding that the proposed combination would deliver substantial consumer benefits and was thus in the public interest. With divestitures in only eight areas in Louisiana and Mississippi and other voluntary commitments by the parties, the Department of Justice and the FCC cleared the nearly $1 billion merger.
After separate class action lawsuits filed in federal and New York state courts regarding the fairness of compensation provided to policyholders in the MetLife demutualization were certified, Compass Lexecon expert Michael Keable testified at deposition in both cases that the policyholders, rather than being harmed, actually benefited from the demutualization and that plaintiffs’ experts had failed to establish that there were any damages. Just prior to the beginning of trial in federal court, both cases settled on favorable terms for our client, MetLife. Keable was assisted by Rahul Sekhar, Cliff Ang, and others in the Chicago office. We worked with Bruce Yannett, Carl Micarelli, Mark Goodman, and others at Debevoise & Plimpton LLP.
Mary Coleman, supported by a Compass Lexecon team in Washington, DC including David Weiskopf, Anna Koyfman, and Nicolas Shea, provided economic analysis related to Huntsman’s proposed acquisition of certain assets of Tronox. The economic analysis focused on the titanium dioxide industry. Compass Lexecon participated extensively in written submissions and presentations to the United States Federal Trade Commission. The FTC ultimately decided not to issue a second request, terminating its investigation of the proposed transaction. Huntsman was represented by Billy Vigdor and Dionne Lomax of Vinson & Elkins LLP, and Tronox was represented by Marimichael Skubel of Kirkland & Ellis LLP.
Pfizer Inc. and the law firms of Morgan, Lewis & Bockius LLP and Cadwalader, Wickersham & Taft LLP retained Compass Lexecon to provide economic analysis in connection with the successful merger of Pfizer and Wyeth. Valued at about $65 billion, this was the largest merger or acquisition in 2009. The merger integrated Wyeth’s expertise in biologic drugs with Pfizer’s capabilities in small molecule drugs and its large distribution network. Compass Lexecon organized a team effort, led by Richard Gilbert, to address several issues of concern to the U.S. Federal Trade Commission, which was the lead antitrust enforcement agency for the merger. Professor Gilbert authored two white papers dealing with the effects of the transaction on pharmaceutical research and development and on the development of new drugs to treat Alzheimer’s disease in particular. Professor Gilbert also co-authored a series of other papers with Compass Lexecon experts Vince Warther, Gilad Levin, and Jim Ratliff on whether the combined company was “too big to fail,” the impact of the merger-related debt on the ability of the combined company to compete, and whether the merger facilitated anticompetitive bundling. We worked with Scott Stempel of Morgan, Lewis and Rick Rule of Cadwalader.
In this case, a bankruptcy trustee sued our clients, JP Morgan Chase, Morgan Stanley, Credit Suisse, and Bear Stearns, claiming that they were responsible for losses of $900 million suffered by American Business Financial Services, Inc., an originator of subprime loans. Compass Lexecon expert Daniel Fischel performed a valuation analysis, as well as an analysis of the economics of the subprime loans and the factors which affected the value of those loans, and concluded that the plaintiff and its experts had not established that the financial institution defendants were responsible for any losses. The case settled for a small fraction of the amount claimed on the eve of trial. We were retained by Steven Feirson and Michael Doluisio of Dechert LLP and by Andrew Goldman and Douglas Curtis at Wilmer Cutler Pickering Hale & Dorr LLP.
In this historic and nationally publicized case, William Ruehle, formerly CFO of Broadcom Inc., was indicted for securities fraud in connection with alleged options backdating. Henry Nicholas, Broadcom’s former CEO, was indicted for the same offense. Compass Lexecon was retained by the defense in both cases. The cases were severed and Ruehle’s was the first case scheduled for trial. Professor Daniel Fischel, Compass Lexecon’s President, was designated as a defense witness to testify about a variety of subjects including materiality based on Compass Lexecon’s extensive analysis of the economics of alleged options backdating at Broadcom and other firms. But after a series of withering cross-examinations of cooperating government witnesses, exculpatory testimony by defense witnesses whom the court had immunized over government objection, and stunning revelations of prosecutorial misconduct exposed by defense counsel, the Court entered a judgment of acquittal in favor of Ruehle before the case went to the jury and also dismissed the indictment against Nicholas. We worked with Richard Marmaro, Matthew Umhofer, Jack DiCanio, Matthew Sloan, and Ryan Weinstein of Skadden, Arps, Slate, Meagher & Flom LLP who successfully represented Ruehle. We also worked with Nicholas’ defense team led by Brendan Sullivan and others at Williams & Connolly LLP. David Ross, Jessica Mandel, and others in Compass Lexecon’s Chicago office worked along with Professor Fischel on these cases.
On September 30, 2009, the United States District Court for the District of Columbia granted the summary judgment motion of Compass Lexecon clients Exxon Mobil, BP America, ConocoPhillips, and Shell. These firms hired Compass Lexecon expert Joseph P. Kalt to assess Plaintiffs’ claims that the Defendants had colluded to fix the price of natural gas sold in North America. Professor Kalt’s analysis found that there was no evidence of market concentration and, more fundamentally, that there was no credible evidence of any parallel or coordinated conduct among the Defendants with respect to supply or pricing decisions. Based in significant part on this analysis, the Court ultimately concluded that Defendants’ behavior simply reflected independent, self-interested conduct and, thus, did not provide any evidence to support an inference of conspiracy. We worked with legal teams representing each of the Defendant companies including counsel at Howrey LLP, White & Case LLP, Fulbright & Jaworski LLP, and Kirkland & Ellis LLP.
On September 30, 2009, Judge Richard Berman of the US District Court for the Southern District of New York granted summary judgment in favor of Compass Lexecon’s client Del Monte in the Fresh Del Monte Pineapples Antitrust Litigation. Plaintiffs claimed that Del Monte had created a monopoly for extra sweet whole pineapples by improperly using its claimed patent rights over a particular strain of pineapples to exclude potential entrants from the market. Dennis Carlton of Compass Lexecon was Del Monte's expert on damages. Bradley Reiff of Compass Lexecon was Del Monte's expert on indirect purchasers' class certification.
Plaintiffs brought the action on behalf of two classes, direct purchasers (defined as retailers and wholesalers that purchased pineapples directly from Del Monte) and indirect purchasers (defined as consumers of pineapples purchased from retailers). Del Monte contested certification of the indirect purchasers’ class, but not the direct purchasers' class. In an earlier ruling, dated February 20, 2008, Judge Berman rejected certification of the indirect purchasers' class largely on the grounds that Plaintiffs' expert failed to show pass-through of the alleged overcharge from direct purchasers to indirect purchasers. The Court's opinion relied heavily on the analysis of Dr. Reiff. Plaintiffs subsequently filed similar indirect purchaser class actions in California and Florida. In a decision on August 20, 2009, the Superior Court of California rejected certification of the indirect purchasers' class, also relying on Dr. Reiff's analysis.
In the September 30, 2009 summary judgment ruling, Judge Berman rejected the testimony of Plaintiffs' expert regarding relevant market definition. Compass Lexecon assisted David Barrett, Carl Goldfarb, Stuart Singer and Carlos Sires of Boies, Schiller & Flexner LLP in preparation of Del Monte's summary judgment motions.
In this alleged price-fixing class action, a plaintiff class of registered nurses in the Chicago, IL area alleged that defendant hospitals in Chicago conspired to suppress nursing wages. Compass Lexecon expert Bobby Willig, supported by Susan Manning, Elizabeth Wang, Bryan Keating, Meg Guerin-Calvert, and Compass Lexecon teams in Washington, DC and Cambridge, MA, testified on behalf of the defendants on class-wide impact and damages. In one of the strongest endorsements of expert testimony in recent memory, the Court heavily relied upon, and repeatedly cited Professor Willig’s testimony, particularly with regard to the lack of common evidence of class-wide impact and damages, and the flaws in plaintiffs’ expert’s economic model, which the Court harshly criticized and completely rejected. Accordingly, the Court did not certify the proposed class because the plaintiffs’ expert had not shown that common evidence could establish impact and assess damages on a class-wide basis. We worked with Scott Perlman and Bob Bloch of Mayer Brown; David Marx, Jr. and David Hanselman of McDermott Will & Emery; Michael Shakman, Diane Klotnia, and Edward Feldman of Miller Shakman & Beem LLP; Jim Calder and Martin Tully of Katten Muchin Rosenman LLP; Chris King and Margo Weinstein of Sonnenschein Nath & Rosenthal LLP; and Tim Haley of Seyfarth Shaw LLP.
Plaintiffs filed a series of cases under both the securities laws and ERISA challenging various financial disclosures by Baxter. Compass Lexecon experts Daniel Fischel and Michael Keable have acted as experts for defendants in these cases in the areas of materiality, causation, and damages. All of the cases except one have now either been dismissed or resolved in favor of our clients at the summary judgment stage. We are working with Matt Kipp, Donna McDevitt, and Andrew Fuchs of Skadden, Arps, Slate, Meagher & Flom LLP in all the Baxter matters.
In August 2009, U.S. District Court Judge Robert T. Dawson ruled in favor of Compass Lexecon’s client CHEP USA by denying plaintiffs’ motion for class certification in a suit alleging that CHEP violated Sherman Act Section 2 through its alleged efforts to monopolize the market for 40” x 48” wood pallets in the continental United States. Judge Dawson reached his decision in part by relying on the analysis of Compass Lexecon expert Dan Rubinfeld. Professor Rubinfeld demonstrated, and the judge agreed, that plaintiffs had failed to properly define a relevant market. In particular, Professor Rubinfeld’s analysis showed that due to relatively high shipping costs, there were numerous localized relevant geographic markets rather than the single continental U.S. market alleged by plaintiffs. Professor Rubinfeld also argued that plaintiffs’ proposed sampling methodology was incapable of demonstrating class-wide impact. Professor Rubinfeld was supported by a team in the Oakland office including Jim Ratliff, Simon Rosen, Kristin George, Blake Phillips, and Sarah Bartlett. CHEP was successfully represented by Bill Kolasky of Wilmer Cutler Pickering Hale & Dorr LLP.
Compass Lexecon was retained by the New Zealand Commerce Commission in its litigation against Visa, MasterCard and their New Zealand member banks, concerning the competitive effects of interchange fees and network rules including restrictions on merchants’ ability to levy surcharges on credit card transactions. Professor Dennis Carlton, Dr. Gustavo Bamberger and Dr. Alan Frankel submitted expert reports on behalf of the Commerce Commission. All defendants settled prior to trial, agreeing to permit merchant surcharges in New Zealand and to other relief. Compass Lexecon also worked with David Goddard, QC of Thorndon Chambers.
In this case, Compass Lexecon expert Janusz Ordover, supported by Lacey Plache of Compass Lexecon’s Los Angeles office, testified at an FCC hearing in front of the administrative law judge on behalf of Bright House and Cox in a case involving a carriage complaint brought by Herring Broadcasting (“WealthTV”) against Bright House, Cox, and other MVPD defendants. WealthTV alleged that Bright House's and Cox's failure to carry the WealthTV network was discriminatory and restrained its ability to compete fairly. Professor Ordover testified on behalf of Bright House and Cox on economic issues related to the carriage complaint and demonstrated that the plaintiff had failed to support its claims. The administrative law judge issued a recommended decision to the full Commission in favor of the defendants. We worked with various members of Bright House's and Cox's legal teams, including R. Bruce Beckner of Fleischman and Harding LLP and David Mills and J. Parker Erkmann of Dow Lohnes PLLC.
In April 2001, corporations formed by Larry Silverstein and the Port Authority of New York and New Jersey entered 99-year leases for Towers One, Two, Four and Five of the World Trade Center. The consideration paid by Silverstein to the Port Authority in a competitive auction was valued at $2.805 billion. Pursuant to the destruction of these buildings on September 11, 2001, Silverstein’s company, World Trade Center Properties LLC, and several holding companies filed suit against American Airlines Inc., United Air Lines Inc., Boeing and other defendants seeking over $16 billion in damages. Counsel for the aviation defendants, assisted by Compass Lexecon experts Daniel Fischel, Rajiv Gokhale, and others in Compass Lexecon’s Chicago office, filed a motion for summary judgment, arguing that Silverstein’s damage claim was implausible and the correct benchmark for damages was the market value of the four towers as of September 11, 2001. Judge Alvin K. Hellerstein reached the same conclusion in a series of rulings rejecting Silverstein’s $16 billion damage claim. Professor Fischel has now also made several presentations on damages to a mediator in the next phase of the case against the subrogated insurers. We are working with Brian Fraser and Neil Binder of Richards Kibbe & Orbe LLP, Roger Podesta and Maura Monaghan of Debevoise & Plimpton LLP, and Robert Atkins of Paul, Weiss, Rifkind, Wharton & Garrison LLP, among others.
Our client Amaranth was sued by the CFTC and the FERC for allegedly manipulating the price of natural gas futures contracts. Compass Lexecon expert Daniel Fischel analyzed the economic evidence in the case and testified that the government’s expert reports were fundamentally flawed and that Amaranth's trading was perfectly consistent with normal market activity. Professor Fischel was assisted by David Ross, Hans-Juergen Petersen, Elizabeth Wall, and others in Compass Lexecon's Chicago office. The case eventually settled on favorable terms. We worked with Stephen Senderowitz, Michael Phillips, David Mollon, and Kristen Grisius of Winston & Strawn LLP who represented Amaranth.
In 2007, Joseph Nacchio was convicted of insider trading. On appeal, he argued that the trial court erred by excluding the expert testimony of Compass Lexecon expert Professor Daniel Fischel on the ground that his lawyers had not provided the Government with adequate disclosure. The Tenth Circuit initially agreed and reversed the conviction but the entire Circuit en banc reinstated the conviction on a 5-4 vote and the Supreme Court declined to hear the case. After trial, Professor Fischel, assisted by David Ross and Jessica Mandel of Compass Lexecon’s Chicago office, submitted an expert report on economic harm which the district court did not rely on and sentenced Nacchio to a prison term of six years. On appeal of this sentencing decision, however, the Tenth Circuit, repeatedly citing Professor Fischel’s expert report on economic harm, reversed the district court and sent the case back for resentencing. We are working with Sean Berkowitz and others of Latham & Watkins LLP who are representing Mr. Nacchio.
Compass Lexecon was retained by Greg Curtner at Miller, Canfield, Paddock and Stone P.L.C. and the Law Offices of David Mendelson PC on behalf of their client Valassis Communications Inc. to estimate damages in Valassis’s suit against News America Marketing Inc., a unit of News Corp. Valassis claimed that it had been harmed by News America’s unfair competition and tortious interference in the market for newspaper coupon inserts. Compass Lexecon expert Gustavo Bamberger of our Chicago office prepared two reports and testified on behalf of Valassis in a jury trial in Michigan’s Circuit Court for the County of Wayne. Wendy Petropoulos and others in the Chicago office provided support. The jury found for our client and awarded $300 million in damages to Valassis.
NRG filed suit in the United States District Court Southern District of New York seeking to require Exelon to withdraw its pending hostile tender offer, claiming that Exelon harbored a secret intent not to close the exchange offer. Compass Lexecon expert Daniel Fischel testified at trial on behalf of Exelon, disputing NRG’s expert's methodology and conclusions. The Court, after considering the testimony of both experts, cited Professor Fischel’s testimony favorably, and dismissed NRG's complaint. Vince Warther, David Gross, and Jerry Lumer of Compass Lexecon’s Chicago office assisted in this analysis. We worked with Walter Carlson and Brad Kapnick of Sidley Austin LLP.
Compass Lexecon expert Joseph Cavicchi provided extensive analysis and testimony on behalf of Energy Northwest in a power option purchase contract dispute that resulted in a favorable outcome for Energy Northwest. Our work required the use of complex analytical techniques that accounted for expected variations in wholesale fuel and power markets and utilized our extensive knowledge of how power plants are economically dispatched in wholesale electricity markets. Cavicchi provided written and oral testimony presenting the valuation and subsequent damages associated with the dispute. Compass Lexecon worked with Stevan Phillips of Stoel Rives LLP.
Based in part on Compass Lexecon’s extensive testimony and analysis, the Pennsylvania Public Utilities Commission approved a multi-billion dollar power procurement plan for PPL Electric Utilities for years 2011-2013. Compass Lexecon provided PPL competitive market analysis, assistance with regulatory strategy development, and considerable support in the development of an overall procurement plan and request for proposals and electricity supplier agreements that would meet Pennsylvania’s legislative and regulatory requirements. Joseph Cavicchi provided written and oral testimony supporting the procurement plan and relevant documents necessary for its implementation with extensive support from Andrew Lemon of Compass Lexecon’s Cambridge office. We worked with David MacGregor and Michael Hassell of Post & Schell, PC.
On June 17, 2009, United States District Court Judge Rebecca R. Pallmeyer, Northern District of Illinois, Eastern Division, granted summary judgment for our clients, Motorola, Inc. in an ERISA case concerning investments in the Motorola Stock Fund that were part of Motorola, Inc.'s 401(k) Plan. Compass Lexecon expert David Ross, supported by Laurel Van Allen and Gina Vinogradsky in our Chicago office, submitted reports concerning class certification and damages and testified at deposition. Motorola, Inc. was represented by John Murray, Ian Morrison and others at Seyfarth Shaw LLP.
In this case, Professor Dennis Carlton and Dr. Mark Israel of Compass Lexecon were retained by Michael Dockterman of Wildman, Harrold, Allen & Dixon LLP on behalf of Toys R Us in an arbitration related to a dispute with Chase, regarding the co-branded Toys R Us Visa card issued by Chase. Compass Lexecon provided an economic analysis of the importance of enforcement of contractual terms and estimated potential damages to Toys R Us if the contract were terminated prematurely. The case settled on favorable terms.
Compass Lexecon expert Janusz Ordover provided economic consulting to the legal teams advising Vodafone Group Plc and Hutchison Telecommunications Ltd. in the proposed merger of their Australian mobile phone operations. In clearing the merger, the Australian Competition and Consumer Commission (ACCC) agreed with Professor Ordover and focused on the increasing need for mobile network operators to have sufficient scale to be able to make significant investments in their network capabilities to provide high speed data services such as mobile broadband. Vodafone was represented by Linda Evans of Clayton Utz. Hutchison was represented by Fiona Crosbie of Allens Arthur Robinson.
In approving the settlement of the coordinated Initial Public Offering Securities Litigation involving over 300 cases, Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York, in a lengthy opinion, repeatedly cited Compass Lexecon expert Professor Daniel Fischel’s reports and affidavit. Professor Fischel’s reports and affidavit focused on whether the 300 stocks traded in an efficient market, and also analyzed causation, materiality and damages. Vince Warther, Jessica Mandel, David Ross, Kevin Hartt, and Yili Wang, among others in our Chicago office provided assistance.
On June 1, 2009, Judge Matthew Kennelly of the United States District Court for the Northern District of Illinois, Eastern Division ruled in favor of our client, Tellabs Inc., in an ERISA case. Plaintiffs alleged, among other things, that defendants made misrepresentations regarding Tellabs' business and failed to disclose information that plaintiffs needed in order to make informed decisions about the allocation of their contributions to the Tellabs Stock Fund in the Tellabs Advantage Plan, a retirement and savings plan. Compass Lexecon expert David Ross initially filed an expert report on class certification, and then testified at trial on behalf of defendants concerning the investment decisions made by Plan participants during the relevant period. Laurel Van Allen and Gina Vinogradsky of our Chicago office provided assistance. Defendants were represented by Chuck Jackson, Sari Alamuddin, Debbie Davidson, and others in the Chicago office of Morgan, Lewis & Bockius LLP.
Working on behalf of Royal Dutch and Shell, Compass Lexecon provided significant assistance to the defense of this case, which resulting, among other things, the first class-wide settlement between European investors and a European company over European securities claims. The work undertaken by the team from our Chicago office (including Daniel Fischel, Mike Keable, Vince Warther, Peter Clayburgh, Hans Peterson, and Liz Wall) included analyzing trading and relative price movements of shares traded on the U.S. and foreign exchanges. We worked with Ralph Ferrara, Ann Ashton, Jonathan Richman, Chris Clark, and others at Dewey & LeBoeuf LLP and Jon Tuttle and Scott Auby at Debevoise & Plimpton LLP.
Compass Lexecon expert Jon Orszag, supported by Jay Ezrielev, Elizabeth Wang, Loren Poulsen, and Bryan Keating of Compass Lexecon’s Washington and Cambridge offices, testified on economic issues at an FCC hearing in front of the administrative law judge on behalf of Comcast in a case involving a carriage complaint brought by NFL Enterprises against Comcast. NFL Enterprises alleged that Comcast’s carriage of the NFL Network was discriminatory and sought to compel Comcast to carry the NFL Network on highly penetrated tiers. The parties settled the dispute after the completion of the FCC hearing on very favorable terms to our client. As the newspaper stated, “If you want a final score from yesterday’s announcement, it was something like: Comcast 34, NFL 10.” We worked with various members of Comcast’s legal team, including David Toscano, Arthur Burke, Michael Carroll, and Jennifer Ain of Davis Polk & Wardwell LLP and Mike Hammer of Willkie Farr & Gallagher LLP.
This case involves an antitrust challenge by the Arizona Attorney General to the closing of a newspaper, The Tucson Citizen, by the owner of the remaining newspaper, The Arizona Daily Star. With the support of Eric Henson and Compass Lexecon’s Tucson office staff, Professor Joseph Kalt filed an affidavit demonstrating that the Arizona Daily Star would not be able to successfully exercise any alleged monopoly power because consumers, both readers and advertisers, had access to many alternative media and that the “competition” at issue was between two products produced, marketed and priced by a single firm. The Court then rejected the Attorney General’s request for a temporary restraining order. We were retained by attorneys representing the newspapers including, Don Kaplan from K&L Gates LLP and Gordon Lang from Nixon Peabody LLP.
Last week, after a five week trial before the Honorable Judge Ronald A. Guzman, a federal court jury in Chicago delivered a verdict against Household International and three officer defendants and in favor of Compass Lexecon's client, a class of investors. The jury determined that all four defendants violated federal securities laws and that as a result, Household's stock price was inflated by $23.94 a share for much of an 18 month period. Daniel Fischel, Compass Lexecon's Chairman and President, provided expert testimony on materiality, causation and the quantification of inflation on behalf of the plaintiff class in the case. The case now moves to a damages phase which could result in one of the largest, if not the largest, damage awards in a jury trial commercial case in American history. This result is particularly significant because there have been virtually no securities fraud cases to go to verdict in recent years.
After an unsuccessful Daubert challenge, Professor Fischel at trial quantified inflation using two different methods - the first focusing on stock price reactions to specific disclosures and the second focusing on analysis of stock price movements over a longer period based on a leakage model. Professor Fischel also responded to various criticisms and claims by defendants' experts as the only rebuttal witness. The jury adopted the per share inflation calculations taken directly from Professor Fischel's leakage model in its verdict. Mike Keable, Jessica Mandel, Jerry Lumer, Cliff Ang, Peter Clayburgh and many others from our Chicago office worked on the case and provided invaluable assistance. We worked with Mike Dowd, Spence Burkholz, Dan Drosman, Azra Mehdi, and Luke Brooks from Coughlin Stoia Geller Rudman & Robbins LLP who successfully represented the plaintiff class.
The Delaware State’s Department of Finance filed suit against CA, Inc. alleging significant escheat liability following the termination of CA’s agreement to voluntarily disclose prior escheat liability. Compass Lexecon was retained by counsel for the State of Delaware, Ed Welch and Ed Micheletti of Skadden, Arps, Slate, Meagher & Flom LLP to estimate CA’s escheat liability. Kevin Dages, supported by a team in our Chicago office, served as consulting expert to Delaware during the discovery phase of the case and prepared analyses of escheat liability damage estimates for purposes of mediation and settlement. The matter settled favorably to our client.
On March 26, 2009, Judge George C. Hernandez of the California Superior Court ruled in favor of our client, American Express, on all counts in the matter of Hoffman v. American Express. Plaintiffs were a national class of American Express card members, alleging that Amex overcharged them by as much as $310 million in connection with travel insurance programs. In one of the few nationwide class actions that have gone to trial, Judge Hernandez ruled in favor of American Express after the Plaintiffs finished their 11-week trial presentation, and ordered Plaintiffs to pay court costs. Compass Lexecon expert Daniel Fischel provided expert testimony in the case and showed that the damage calculation of Plaintiffs’ expert was unreliable. Professor Fischel was supported by a Chicago-based team that included Hal Sider, Tom Stemwedel, and Margaret Bennett. We worked with David Shapiro and Fred Norton of Boies, Schiller and Flexner LLP.
On March 19, 2009, a jury in Federal Court for the Middle District of Florida returned a verdict for our client, Plaintiffs Shareholder Corporation (PSC), against Southern Farm Bureau Life Insurance Co. and awarded PSC $31.7 million in damages. PSC claimed that it was defrauded when Southern Life purchased its convertible debenture. Compass Lexecon expert Charles Cox testified that Tillinghast-Towers Perrin's valuation of the debenture (the valuation provided to PSC by Southern Life) underestimated its value by at least 91% and that PSC suffered an economic loss of $31.7 million. Rajiv Gokhale, Laurel Van Allen, Agustina Levy, and Jessica Mandel of our Chicago office provided support in the case. We worked with Jerry Linscott of Baker and Hostetler LLP in Orlando, FL.
In March, CME Group won final approval to provide central counterparty clearing services for credit default swaps (CDS), following an extensive review by the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, and the Financial Industry Regulatory Authority. As a result, CME became the first clearinghouse permitted to clear single-name CDS contracts alongside CDS index contracts. A Compass Lexecon team, headed by Professor Christopher Culp, and assisted by Hal Sider and Andrea Neves, was retained by CME to evaluate its proposed methodology for determining margin requirements for CDS contracts and the adequacy of financial safeguards available to cover default-related losses in excess of margin by a CME CDS clearing member. The Compass Lexecon team concluded in a series of written reports and presentations made to government regulators, that CME’s approach to determining CDS portfolio margin is conceptually sound and that financial safeguards are available to absorb potential losses associated with CDS clearing member defaults.
On March 12, 2009, the United States Court of Appeals for the Federal Circuit issued its decision in favor of the Federal Government in Rose Acre Farms, Inc. v. United States. Rose Acre Farms is a large egg producer seeking compensation for Federal Government regulations of eggs that were believed to be tainted with salmonella bacteria. Rose Acre claims that the Government regulations, which caused it to divert table eggs to be processed and sold as pasteurized liquid eggs, constitutes a takings under the 5th Amendment. Bradley Reiff of Compass Lexecon testified on behalf of the Federal Government on economic impact and damages. After the initial trial in 2002, the United States Court of Federal Claims ruled in favor of Rose Acre, but specified damages based on Dr. Reiff’s calculations. In 2004, the Federal Circuit vacated and remanded the case for reconsideration, holding that the trial court failed to account for economic impact, among other things, under the standards of Penn Central Transportation Co. v. New York City (Penn Central factors). In a second trial in 2006, Dr. Reiff testified that economic impact is best measured through diminution in the value of the taken property. Rose Acre contended that economic impact should be measured through diminution in profit based on an allocation of average total cost. Dr. Reiff demonstrated that Rose Acre’s approach to economic impact using diminution in profit can lead to non-sensical results when profits, based on an allocation of average total cost, are near zero or negative. In this latest decision, the Federal Circuit relied heavily on Dr. Reiff’s analysis and ruled that Dr. Reiff’s diminution in value approach is appropriate in this case. Accordingly, the Federal Circuit determined that Rose Acre did not suffer severe economic harm. The Federal Circuit reversed the trial court’s decision, effectively ending the litigation in favor of the Federal Government. Lynette Neumann and Margaret Bennett assisted in the analysis. Compass Lexecon was retained by the Department of Justice, whose lead attorney at trial was Sheryl L. Floyd.
In March, Judge Peter Economus of the United States District Court for the Northern District of Ohio, Eastern Division, denied plaintiffs’ motion for class certification in the Diebold ERISA Litigation. The Court’s ruling was based on his finding that the plaintiffs could not adequately represent the class due to conflicts of interest between members of the proposed Class. David Ross, supported by Laurel Van Allen and Gina Vinogradsky in our Chicago office, submitted a report on behalf of defendants on the conflict issue. Defendants were represented by Victoria Gorokhovich and Jeremy Blumenfeld at Morgan, Lewis & Bockius LLP in Philadelphia.
On March 5, 2009, United States District Court Judge Richard G. Stearns ruled in favor of our client, Cabot Corporation, on its motion for summary judgment against AVX Corporation and AVX Limited regarding antitrust allegations of tying in the marketplace for tantalum. The Court’s ruling relied in part on expert testimony provided by Compass Lexecon expert Joseph P. Kalt concerning the relevant market at issue and whether Cabot Corporation’s actions were consistent with the economics of tying. Professor Kalt was supported by Eric Henson and Andrew Lemon of our Tucson and Harvard Square offices. We worked with Brian A. Davis of Choate Hall & Stewart LLP.
The plaintiff in this case, Flagship Theatres, alleged collusion between Century Theatres and film distributors, Sony Pictures Releasing Corporation and Universal Film Exchanges LLP, in the distribution of first-run feature films in Palm Desert, CA. Dan Rubinfeld, supported by Duncan Cameron and a Compass Lexecon team in Los Angeles, testified on behalf of Century that the practice of film “clearances” is consistent with the unilateral self-interests of exhibitors and distributors, that Century did not have market power in a properly defined relevant market, that there was no basis for plaintiff’s allegations of “circuit power” exercised by Century to coerce Sony and Universal to distribute their films adverse to their unilateral self-interest, and that there was no antitrust injury in any properly defined antitrust market. Judge Linda Lefkowitz granted summary judgment for Century on all causes of action. Century was represented by Max Blecher and David Kesselman of Blecher & Collins.
Duncan Cameron, supported by a Compass Lexecon team in Los Angeles (Lisa Marovich, Marc Huntley and Chris Fasel), testified on behalf of Equifax in a case involving allegations of conspiracy to create and maintain a monopoly of credit report resellers. The plaintiff, Consortium, alleged that it had been terminated as a reseller of Equifax credit reports as a result of a conspiracy among Equifax and certain other resellers, for the purpose of maintaining prices for credit reports. After a two week trial, the jury deliberated for less than an hour and unanimously found in favor of Equifax on all counts. Equifax was represented by Bill Molinski and Frank Rorie of Orrick, Herrington & Sutcliffe LLP.
Professor Francis McGovern of Duke University School of Law, in his role as an administrator of numerous securities settlement distribution funds, retained Jon Orszag, Arti Bhargava, and Yair Eilat to provide a wide range of analyses in determining equitable distribution methodologies of various large and complex settlements, including on behalf of AIG, Bear Stearns, HealthSouth, Smith Barney, and the Global Research Analyst Settlement involving Goldman Sachs, Citigroup, Morgan Stanley, JP Morgan, and others.
In this motion for class certification, Meg Guerin-Calvert, supported by Paul Godek, Loren Poulsen, and a Compass Lexecon team in Washington, DC, provided economic analysis on behalf of manufacturers of DRAM modules. Ms. Guerin-Calvert concluded that impact and damages allegedly suffered by members of a proposed class of state governments and agencies could not be assessed on a class-wide basis. In its opinion, the Court cited Ms. Guerin-Calvert’s expert report in its critical holdings and ultimately agreed with her conclusion that class certification was not appropriate. Defendants were represented by G. Charles Nierlich of Gibson, Dunn & Crutcher LLP, Ken O’Rourke and Steve Bergman of O’Melveny & Myers LLP, David Brownstein of Heller Ehrman LLP, Jonathan Swartz of Thelen LLP, Joshua Stambaugh of Kaye Scholer LLP, and Harrison Frahn of Simpson, Thacher & Bartlett LLP.
Compass Lexecon affiliate William Landes testified on behalf of the National Music Publishers’ Association, the Songwriters Guild of America, and the Nashville Songwriters Association International (jointly, “Copyright Owners”) before the Copyright Royalty Board (CRB) in a hearing to set royalty rates for mechanical licenses, which are required to make copies of records using copyrighted songs, including for example, CDs and other physical records, digital downloads, and ringtones. With regard to ringtones, the CRB cited Landes’ testimony and the “Landes mastertone benchmark” in deciding on reasonable rates for this use of copyrighted songs. Landes was supported by a team in our Chicago office including Lisa Landes, Erica Benton, and Wendy Petropoulos. We were retained by Jay Cohen at Paul, Weiss, Rifkind, Wharton & Garrison LLP who represented the Copyright Owners. Meg Guerin-Calvert also submitted testimony in this CRB proceeding on behalf of members of the Digital Media Association (DiMA), including Apple iTunes, RealNetworks, Inc., MediaNet Digital, and Yahoo! Inc. Her testimony examined the dynamics of the digital music marketplace and focused on the appropriate rate structure for the range of digital music use in permanent and limited downloads and interactive streaming, such as subscription services. The percentage of revenue method she advanced was the rate structure adopted in the settlement by the parties with regard to limited downloads and interactive streaming. She was supported in the Washington, DC office by Susan Manning and Susan Burkhauser in a retention by Fernando Laguarda and Thomas Connolly of Harris, Wiltshire, & Grannis LLP and Lee Knife of DiMA.
Jon Orszag and Jay Ezrielev of Compass Lexecon were retained by Marc Williamson and John Janka of Latham & Watkins LLP on behalf of their client Inmarsat plc to assist in the application for the transfer of control of Stratos Global Corporation and subsidiaries to Inmarsat. Vizada Services LLC opposed the transaction. On January 16, 2009, the FCC granted the application, finding that the transfer of Stratos Global Corporation and subsidiaries to Inmarsat was in the public interest. The FCC also denied Vizada’s petition to oppose the transaction and further found that Vizada did not show that Inmarsat had significant market power in the international mobile satellite services market or that its acquisition of Stratos Global would give it significant market power.
Compass Lexecon expert Joseph Kalt, supported by Eric Henson and a team in Cambridge, MA, were retained by attorneys for defendants Columbia Gas Transmission Corp., Dynegy Inc., Virginia Electric and Power Company, and El Paso Merchant Energy LP. Plaintiffs alleged that they and other proposed class members were harmed because Columbia Gas Transmission provided its own marketing affiliate and other defendants with preferential access to pipeline services. Professor Kalt testified that plaintiffs’ claims were not susceptible to class-wide treatment and that injury to proposed class members could not be established without individualized inquiry. Judge Robert C. Chambers agreed, concluding that “To decide liability, individual inquiries would dominate the case,” and denied class certification. Individual plaintiffs continued to press discrete claims of harm against Colombia Gas Transmission and others. Professor Kalt provided additional testimony rebutting the plaintiffs’ expert’s testimony regarding adverse impact to the individual shippers who brought the suits. The litigation was resolved favorably for our clients. We worked with several members of the defendants’ legal teams including Hamilton Loeb of Paul, Hastings, Janofsky & Walker LLP, Richard “Ky” Owen of Goodwin & Goodwin, LLP, Roxane Polidora of Pillsbury Winthrop Shaw Pittman LLP, Howard Feller of McGuireWoods LLP, and Murray Fogler of Beck Redden & Secrest, LLP.
On December 30, 2008, The United States Court of Appeals for the Third Circuit ruled unanimously in favor of our clients, several producers of hydrogen peroxide, with regard to class certification in the Hydrogen Peroxide Antitrust Litigation. In what has been described as one of the most important class certification decisions in recent years, the Court, relying heavily on the testimony of Compass Lexecon expert Janusz Ordover, ruled that district courts must find that each Rule 23 requirement is met by a preponderance of the evidence, resolve all factual and legal disputes relevant to class certification even if they overlap with the merits of the case, and consider all expert testimony, opposing as well as supporting class certification, when deciding to certify a class. We worked with several legal teams including Adam Paris at Sullivan &Cromwell LLP, Christine Levin at Dechert LLP, Steven Bizar at Buchanan, Ingersoll & Rooney PC, Jeffrey Cashdan at King & Spalding LLP, and Joanna Cline at Pepper Hamilton LLP.
On December 16, 2008, Judge William J. Hibbler ruled in favor of our client, the Northern Trust Corporation, by denying a preliminary injunction sought by BP p.l.c. Northern Trust serves as investment manager for various BP pension plans and engaged in securities lending pursuant to its management agreements. After the securities lending program suffered losses, BP sought to withdraw its investments, and it objected to Northern Trust's requirement that BP accept as part of its withdrawal a pro-rated slice of the assets in the securities lending collateral pool. BP sought a preliminary injunction requiring Northern Trust to distribute the BP plans' assets in cash or liquid securities only. Vince Warther, supported by a team in our Chicago office, testified that, among other things, BP's alleged damages could be measured in monetary terms. In its decision, the Court agreed and denied the request for a preliminary injunction, concluding that "the BP plans’ injuries are purely monetary and easily measured." We worked with Caryn Jacobs, John Tharp, and Zachary Ziliak of Mayer Brown LLP on the case.
In April 2001, corporations formed by Larry Silverstein and the Port Authority of New York and New Jersey entered 99-year leases for Towers One, Two, Four and Five of the World Trade Center. The consideration paid by Silverstein to the Port Authority in a competitive auction was valued at $2.805 billion. Pursuant to the destruction of these buildings on September 11, 2001, Silverstein’s company, World Trade Center Properties LLC, and several holding companies filed suit against American Airlines Inc., United Air Lines Inc., Boeing and other defendants seeking over $16 billion in damages. Counsel for the aviation defendants filed a motion for summary judgment, arguing that Silverstein’s damage claim was implausible and the correct benchmark for damages was the market value of the four towers as of September 11, 2001. Judge Alvin K. Hellerstein concurred and held that the “market value as of September 11, 2001 is the limit of permissible recovery.” Rajiv Gokhale, supported by a team in our Chicago office, filed an affidavit in support of the motion. Judge Hellerstein found Mr. Gokhale “qualified to be an expert, and that his opinion provides useful information within his expertise.” We worked with Brian Fraser and Neil Binder of Richards Kibbe & Orbe LLP, Roger Podesta and Maura Monaghan of Debevoise & Plimpton LLP, and Robert Atkins of Paul, Weiss, Rifkind, Wharton & Garrison LLP, among others.
On December 2, 2008, the Securities and Exchange Commission approved a proposed rule change relating to the sale of “non-core” data by NYSE Arca. Janusz Ordover and Gustavo Bamberger filed an economic assessment of a prior draft order on behalf of the NASDAQ Stock Market. The Commission cited the Ordover/Bamberger analysis throughout its order to support its conclusions. We worked with Eugene Scalia at Gibson Dunn & Crutcher LLP and Jeff Davis and Frank Hatheway at NASDAQ.
Direct purchasers, indirect purchasers, and generic manufacturers sued Abbott Laboratories and Fournier in these cases alleging that the introduction of new formulations (and subsequent delisting of the old formulations) of the cholesterol drug TriCor harmed competition by hindering generic manufacturers’ ability to sell old versions of the products. Rich Gilbert and Meg Guerin-Calvert, supported by Jim Ratliff, Bret Dickey, and a Compass Lexecon team spanning the Oakland, San Francisco, Los Angeles, and Washington, DC offices, were retained to analyze the relevant economic issues. Dr. Gilbert and Ms. Guerin-Calvert testified at the liability trial of the direct purchaser and generic manufacturer cases; the cases settled during trial for a fraction of the total damages sought by plaintiffs. Abbott was represented by Bill Cavanaugh, Tom Pippert and others at Patterson Belknap Webb & Tyler LLP; Fournier was represented by Bill Baer, James L. Cooper, and others at Arnold & Porter LLP.
In this class action case, plaintiffs alleged Boston Scientific breached its fiduciary duty to its 401(k) Retirement Savings Plan by selecting company stock as an investment despite knowledge the price was artificially inflated. David Ross, supported by a team in Chicago, submitted an affidavit on behalf of the defendants who opposed class certification. Judge Joseph Tauro ruled in favor of the defendants, denied class certification, and dismissed the Boston Scientific ERISA litigation because the plaintiffs sold substantially more shares than they purchased during the class period and benefited from the alleged artificial inflation of the Company’s stock price. Our client was successfully represented by Stuart Baskin, John Gueli, and Kirsten Cunha of Shearman & Sterling LLP.
Compass Lexecon was retained by both Delta Air Lines and Northwest Airlines in connection with their proposed merger to become the world’s largest airline. Bobby Willig, Dan Rubinfeld, Jon Orszag, Theresa Sullivan, Steve Peterson, and Bryan Keating, along with others in Chicago, Washington, DC, and Boston, were retained by Tim Muris and Christine Wilson of O’Melveny & Myers LLP and Hew Pate and Bruce Hoffman of Hunton & Williams LLP to assist Delta and Northwest in the merger review process. David Painter and Paul Anderson, working with counsel for both parties, helped evaluate the magnitude and merger specificity of the cost savings likely to result from the deal. The DOJ cleared the merger, concluding that “the merger likely will result in efficiencies such as cost savings in airport operations, information technology, supply chain economics, and fleet optimization that will benefit consumers.” Dennis Carlton, supported by Mark Israel, David Fenichel, Eugene Orlov, Kirupa Ramaiah, Dan Stone, and Wendy Petropoulos, was retained by Don Flexner and Jim Denvir of Boies, Schiller & Flexner LLP and Henry Thumann of O’Melveny & Myers LLP to assist in the private litigation seeking to block the Delta-Northwest merger. Dr. Carlton showed that the report of the plaintiffs’ expert had presented a theory of harm wholly inconsistent with the economics literature, as well as the facts of the industry and the proposed merger. Dr. Carlton also showed, using state-of-the-art econometrics, that the Delta-Northwest merger would produce significant benefits for consumers.
Federal Guaranty Insurance Co. (FGIC) entered into a master agreement with MBIA Insurance Corp. (MBIA) in which MBIA acquired approximately $184 billion of FGIC’s municipal bond insurance obligations. GE Funding Holdings, Inc. (GE), the owner of FGIC’s senior preferred shares, challenged the transaction alleging that it would constitute the sale of assets that were vital to FGIC. Compass Lexecon was retained by counsel for GE, Greg Danilow of Weil, Gotshal & Manges LLP and Kevin Abrams of Abrams & Laster LLP to assist in analyzing the relative risks and value of the portfolio being transferred versus the portion being retained, and the effect of such transfer on FGIC’s capitalization. Dr. Christopher Culp, supported by a team in our Chicago office, filed expert reports on GE’s behalf. The matter settled favorably before the conclusion of the hearing in Delaware.
On September 23, 2008, The United States District Court for the Northern District of Illinois Eastern Division ruled in favor of our client, Exxon Mobil, and other petroleum refiners in denying certification of a proposed class of retail gasoline purchasers in the United States. The allegations involved market dominance and deceptive practices on the part of major integrated oil refiners. Janusz Ordover and a Compass Lexecon team in Washington, DC worked with David Yohai of Weil, Gotshal & Manges LLP.
In this case, plaintiffs alleged that Loral’s October 2006 issuance of convertible preferred stock for $300 million to its largest shareholder, MHR Fund Management LLC, was unfair. David Ross, supported by a team in our Chicago office, testified at trial on behalf of the class action plaintiffs. Vice Chancellor Leo Strine issued a memorandum opinion in favor of plaintiffs, cited Ross’s testimony favorably in his opinion, and ordered as a remedy that MHR exchange the convertible preferred shares (which would have been convertible into at least 14.8 million shares) for 9.5 million shares of Loral non-voting common stock. Our client was successfully represented by Travis Laster of Abrams & Laster LLP.
Compass Lexecon was retained by both CME Group Inc. and NYMEX Holdings, Inc. in connection with CME’s $8 billion acquisition of NYMEX. The deal combined the two largest US-based futures exchanges. In addition to providing antitrust consulting services to the merger, Compass Lexecon was also retained to provide litigation support to NYMEX in the subsequent shareholders’ litigation. Bobby Willig, working with Hal Sider, Mark Israel and Tom Stemwedel in our Chicago office, was retained by Ben Crisman and John Lyons of Skadden, Arps, Slate, Meagher & Flom LLP to assist CME in the merger review process. Rick Flyer, supported by Erica Benton and a team in Chicago, was retained by John Scribner and Steve Newborn of Weil, Gotshal & Manges LLP on behalf of NYMEX to conduct pre-merger antitrust evaluations of potential buyers and to assist in the merger review process. Daniel Fischel, working with Vince Warther and a third team in Chicago, was retained by Greg Danilow of Weil, Gotshal & Manges LLP on behalf of NYMEX to analyze shareholder allegations that NYMEX should have negotiated a price “collar” to protect shareholders against a decline in CME’s stock price, and that the fairness opinions were stale. Compass Lexecon analyzed the economics of price collars, management’s incentives to negotiate a collar, and the updating of fairness opinions. The shareholder litigation ended when plaintiffs voluntarily dismissed their claims.
Joe Kalt, supported by Eric Henson and a team in Cambridge, MA, was retained by attorneys for defendants Columbia Gas Transmission Corp., Dynegy Inc., Virginia Electric and Power Company, and El Paso Merchant Energy LP. Plaintiffs alleged that they and other proposed class members were harmed because Columbia Gas Transmission provided its own marketing affiliate and other defendants with preferential access to pipeline services. Dr. Kalt testified that plaintiffs’ claims were not susceptible to class-wide treatment and that injury to proposed class members could not be established without individualized inquiry. Judge Robert C. Chambers agreed, concluding that “To decide liability, individual inquiries would dominate the case,” and denied class certification. Compass Lexecon worked with several members of the defendants’ legal teams including Hamilton Loeb of Paul, Hastings, Janofsky & Walker LLP, Richard “Ky” Owen of Goodwin & Goodwin, LLP, Roxane Polidora of Pillsbury Winthrop Shaw Pittman LLP, Howard Feller of McGuireWoods LLP, and Murray Fogler of Beck Redden & Secrest, LLP.
Janusz Ordover and Glenn Mitchell, supported by a Compass Lexecon team in Los Angeles and Washington, DC provided economic analysis for McCormick, the nation’s largest provider of spice and seasoning products, in their proposed acquisition of the Lawry’s brand from Unilever. Through written submissions and a presentation to the US Federal Trade Commission staff, Compass Lexecon provided economic analysis related to the determination of relevant product and geographic markets, as well as entry and expansion by competing producers, to show that potential competitive effects from the proposed acquisition would be limited. This helped McCormick reach a suitable agreement with the FTC to allow the deal to go forward. Compass Lexecon also provided substantial assistance to McCormick and Unilever providing the data and other information requested by the FTC in the course of their investigation. McCormick was represented by Jan McDavid and Phil Larson at Hogan & Hartson LLP and Unilever was represented by Deborah Feinstein at Arnold & Porter LLP.
In this price-fixing class action, a plaintiff class of registered nurses in the Albany, NY area alleged that defendant hospitals in Albany conspired to fix nursing wages. Bobby Willig, supported by Meg Guerin-Calvert, Susan Manning, and a Compass Lexecon team in Washington, DC, testified on behalf of the defendants on common impact and injury. Judge Thomas J. McAvoy ruled that plaintiffs had met their burden with respect to a violation of antitrust law but not with respect to issues of injury and damage calculations. The Court placed significant weight on Dr. Willig’s testimony particularly with regard to “injury-in-fact” and on his critique of plaintiffs’ damages methodology. Therefore, the court refused to certify a class on the issues of injury, causation and damages. Defendants were represented by Tom Demitrack, Phillip Proger, Toby Singer, and Michael Shumaker of Jones Day; David Marx, Jr. of McDermott Will & Emery; Nicholas D’Ambrosio, Jr., William Reynolds, and Matthew Boyd of Bond, Schoeneck & King, PLLC; Gordon Lang of Nixon Peabody LLP; and Brian Culnan of Iseman, Cunningham, Riester & Hyde, LLP.
Compass Lexecon was retained by David Boies, Don Flexner, Bob Silver, Damien Marshall, Cynthia Christian, and Alanna Rutherford of Boies, Schiller & Flexner LLP to conduct analyses and provide testimony regarding liability and damages in American Express’ suit against Visa, MasterCard, and their member banks. The complaint alleged that the defendants agreed to operate under anticompetitive rules that effectively prohibited member banks from issuing credit cards over the American Express network. Compass Lexecon’s client, American Express, recently settled with the defendants for more than $4 billion – the largest antitrust settlement in U.S. history.
To undertake the assignment given by American Express and its counsel, Compass Lexecon assembled four teams of experts and staff:
The ability of the client and outside counsel to rely on a single firm to provide the necessary staff support and experts as part of this major litigation matter ensured that there was maximum coordination among staff and efficient integration of expert testimony which helped to produce the historic final settlement.
A Compass Lexecon team, led by Lisa Landes, Hal Sider, Allan Shampine and Tom Stemwedel in our Chicago office, supported Northwestern University Professor and Compass Lexecon affiliate Morton Kamien in producing a model of damages suffered by American Express as a result of the defendants’ anticompetitive conduct. Specifically, Professor Kamien and his team developed and testified about the share of credit card spending that bank-issued American Express cards would have achieved but-for the anticompetitive conduct, as well as the lift in spending that American Express proprietary charge cards would have gained from associated network effects. This information, combined with a detailed analysis of profit margins, was used to determine damages to American Express in the form of lost-profits on both its bank-issued credit cards and its proprietary charge cards.
Compass Lexecon’s Robert Willig, working with Hal Sider, Mark Israel, and Jay Ezrielev in our Chicago and Washington, DC offices, quantified the extent of network effects in the credit card industry. The econometric analysis indicated that increases in American Express’ share of eligible consumer expenditures gained through bank issuance of American Express cards would have resulted in increases in merchant acceptance of American Express cards, which in turn would have significantly increased spending by American Express’ proprietary cardholders. State-of-the-art econometric methods applied to the data available to Dr. Willig and his team enabled Dr. Willig to present testimony that measured the size of the network effects associated with credit cards.
Another Compass Lexecon team, led by Hal Sider, Lynette Neumann, and Eugene Orlov in our Chicago office, supported Greg Allenby, Professor of Marketing and Statistics at Ohio State University and a leading expert on the use of statistical methods in marketing. Professor Allenby rebutted claims made by Visa and MasterCard experts that bank issuance of American Express cards would have reduced the number of cards issued through American Express’ traditional marketing channels. Professor Allenby and his team demonstrated that these claims were based on a misapplication of highly sophisticated hierarchical Bayesian statistical estimation techniques.
A fourth Compass Lexecon team, led by Susan Manning, Joanna Tsai and Jeff Rudnicki of our Washington, DC office, provided supporting analysis for the theory of anticompetitive foreclosure resulting from the exclusionary rules and other policies, such as dedication agreements between Visa and MasterCard, respectively, and their member banks.
On July 10, 2008, the United States Court of Appeal for the Third Circuit issued an opinion affirming judgments favorable to our client, ReliaStar Life Insurance Company, in its lengthy litigation with the Pruskys, well-know mutual fund market timers. The Third Circuit favorably cited Compass Lexecon expert Vince Warther's trial testimony at length regarding how the Pruskys' could have mitigated their claimed damages from ReliaStar's refusal to allow them to continue their market timing activities. We worked with Joe Moodhe and Lorna Schofield of Debevoise & Plimpton LLP on the case.
In this class action, Janusz Ordover, supported by Jith Jayaratne and a Compass Lexecon team in San Francisco, provided economic analyses for Tyco Healthcare and concluded that the impact on members of a proposed class of direct purchasers of pulse oximetry products in the United States could not be assessed using evidence common to the class. In our last newsletter, we reported that Judge Mariana Pfaelzer agreed and denied the motion to certify the putative class. Since our last writing, Tyco Healthcare filed a motion for summary judgment on plaintiffs’ Sherman Act Section 1 and 2 claims. In support of this motion, two Compass Lexecon teams provided economic analyses. Janusz Ordover, supported by Jith Jayaratne and a Compass Lexecon team in San Francisco, concluded that plaintiffs had failed to establish that they were injured by the challenged conduct. Joe Kalt, supported by Steve Peterson and a team in Cambridge, also provided economic analyses for Tyco Healthcare to conclude that Tyco Healthcare does not possess monopoly power in the relevant market. In July 2008, Judge Pfaelzer citing changes in competitive conditions in the marketplace, granted Tyco’s motion for summary judgment and rejected plaintiffs’ antitrust claims. Compass Lexecon was retained by Christopher Dusseault of Gibson, Dunn & Crutcher LLP, who successfully represented Tyco Healthcare.
On July 3, 2008, Judge Ewing Werlein ruled in favor of our client, Shell Petroleum, Inc., on its tax refund claim against the United States in connection with a dispute concerning the economic substance of a corporate reorganization under Section 351 of the Tax Code. The Court’s detailed ruling relied in part on expert testimony provided by David Ross of our Chicago office concerning the value of exploratory offshore oil leases transferred in the reorganization. We worked with Steve Gardner and Scott Pashman at Cooley Godward Kronish LLP; Charles Hall and Tom Godbold at Fulbright & Jaworski LLP; and Ken Gobetz at Wichler & Gobetz, PC.
Meg Guerin-Calvert and Jon Orszag were retained by The Doctors Company (TDC) and SCPIE Holdings Inc. (SCPIE) in TDC’s proposed acquisition of SCPIE. TDC and SCPIE were two of the largest providers of medical malpractice insurance in California. With numerous references to the white paper submitted by Compass Lexecon on TDC’s behalf, the California Attorney General’s office concluded that the acquisition would not substantially lessen competition in insurance in California and agreed with Compass Lexecon’s assessment that the relevant market must be expanded to include alternative risk vehicles as well as traditional insurance thus decreasing overall market share. SCPIE was represented by Marc Williamson and David Zaheer of Latham & Watkins LLP and The Doctors Company was represented by Philip Peters of Thelen Reid Brown Raysman & Steiner LLP and Hilary Rowen at Sedgwick, Detert, Moran & Arnold LLP.
Compass Lexecon was retained by Boris Feldman, Gideon Schor, and Jennifer Lee of Wilson Sonsini Goodrich & Rosati on behalf of their client, The Facebook, Inc. Plaintiff and Facebook co-founder Eduardo Saverin moved in California court for a declaratory judgment that he was fraudulently induced to sign an agreement specifying his share interest in Facebook and that the agreement was therefore void. He also moved for a declaration that he was entitled to a 30% interest in the company that was protected from future dilution. Daniel Fischel, Rajiv Gokhale and Rahul Sekhar of our Chicago office supported Facebook at mediation, including analyzing the capital structure and valuation of the company and developing a model for estimating share and monetary damages under varying scenarios. They also conducted a study of share grants to founders of comparable technology firms to determine the frequency with which Saverin's claim that he was entitled to a dilution-protected interest had occurred in the past for comparable companies. Mediation resulted in a successful settlement of the matter for a small fraction of the amount claimed.
Shareholders of Lear sought a preliminary injunction to prevent the acquisition of Lear by AREP, an affiliate of Carl Icahn. Daniel Fischel, supported by David Gross and a Compass Lexecon team in Chicago, filed an expert report and provided economic analyses in support of Lear’s Board of Directors’ decision to go forward with the acquisition. The economic analyses focused on the valuation of Lear, the terms of the merger agreement, and potential conflicts of interest. The court favorably cited Fischel’s report in a lengthy opinion ruling for Lear. We were retained by and worked with Kevin Abrams and others at Abrams & Laster LLP.
Compass Lexecon has continued to be deeply involved in all aspects of securities litigation. Our involvement has been at every stage of litigation, including class certification, summary judgment, mediation, settlement, expert discovery and trial. Recently, we have worked on behalf of defendants in cases involving JDS Uniphase (a case which resulted in a defensive verdict at trial), Tyco, Qwest, Enron, Coca-Cola, Countrywide, Fannie Mae, AOL, Converium, Delphi, Schering-Plough, MetLife, General Motors, Baxter International, Forest Labs, Royal Dutch Shell, Peregrine, McKesson, and many other companies. We have also been retained to work on behalf of plaintiffs in litigation involving Household International and have continued our work on the coordinated litigation of 309 cases challenging the allocation of initial public offerings. In addition, we continue to be involved as experts in several high profile white collar criminal cases.
We were retained in this case by Howard Godnick and David Momborquette of Schulte Roth & Zabel LLP on behalf of their client, The Children’s Investment Fund (“CIF”), in its proxy fight with CSX. Both sides filed claims of alleged disclosure violations. Daniel Fischel filed an expert report in support of CIF’s claim that CSX insiders possessed material inside information prior to the award of certain executive compensation. The court agreed, stating, “The CSX….board possessed material non-public information at the time it set the target awards,” but nevertheless concluded that CSX was not legally obligated to disclose this information. The court also concluded that CIF acted improperly but refused to enjoin them from voting their shares in the proxy contest.
Janusz Ordover, Jon Orszag, and Glenn Mitchell, supported by a Compass Lexecon team in Los Angeles provided economic analysis for DG FastChannel (“DG”) in their proposed acquisition of Vyvx from Level 3 Communications. DG and Vyvx are the two leading distributors of video advertising to television outlets in the United States. As reflected in written submissions and a presentation to the U.S. Department of Justice, Compass Lexecon performed an economic analysis of entry conditions, including an empirical analysis of minimum viable scale and revenue available to new entrants. These analyses demonstrated that the proposed acquisition would not have an adverse effect on competition. Several weeks after the Compass Lexecon presentation, the DOJ concluded its investigation and allowed the deal to go forward. DG was successfully represented by Marc Williamson, Manfred Gabriel, and Alexi Maltas of Latham & Watkins LLP; Level 3 Communications and Vyvx were successfully represented by Phil Verveer, Barry Nigro, and Ben Jackson of Willkie Farr & Gallagher LLP.
In this case, Rick Flyer, supported by a Compass Lexecon team in Chicago, provided economic analysis for the National Association of Realtors (“NAR”) in their antitrust litigation with the U.S. Department of Justice. The litigation involved the NAR’s policies on internet display of residential real estate listings, and specifically whether these policies were anticompetitive. The matter ended in a settlement that preserved key aspects of the NAR’s policies, without any admission of guilt or payment of fines. Our work on this matter assisted Jack Bierig, John Treece and Scott Stein, as well as others at Sidley Austin LLP who successfully represented the NAR.
We were retained in this case by Mark Hansen of Kellogg, Huber, Hansen, Todd, Evans & Figel P.L.L.C. and Bruce Kaplan of Friedman Kaplan Seiler & Adelman LLP to work on behalf of their clients Bain Capital Partners and Thomas H. Lee Partners, two private equity firms, on the $23 billion acquisition of Clear Channel by Bain and Lee. The transaction was one of many that threatened to fall apart amid the current credit crisis. The sponsors, Bain and Lee, brought suit against a consortium of financial institutions for allegedly refusing to fund the acquisition and for failing to negotiate the final transaction agreements in good faith. Compass Lexecon experts Daniel Fischel and Christopher Culp were disclosed as experts on behalf of the two private equity firms. Culp was expected to testify about the lack of availability of alternative financing; Fischel was expected to testify about the economics of the commitment letter and damages. In largely denying the financial institutions motion for summary judgment, the court relied in part on the opinions of the private equity firms’ “impressive” experts. The case then settled after the first day of trial. We were also retained by Robin Gibbs of Gibbs & Bruns L.L.P. in a related case which also settled. Another Compass Lexecon expert, Kevin Dages, had been scheduled to testify in that case along with Culp.
Shareholders of Bear Stearns sought a preliminary injunction in this case to prevent the acquisition of Bear Stearns by JPMorgan Chase. David Gross and a Compass Lexecon team in Chicago supported Larry Meyer, a former Governor of the Federal Reserve, who put forth an affidavit explaining the Federal Reserve’s actions and the potentially serious consequences to the financial system as a whole if an injunction preventing the acquisition was granted. We also analyzed other economic issues in the case. The shareholders dropped their suit the day before the scheduled preliminary injunction hearing. JPMorgan Chase was successfully represented by Marc Wolinsky, Peter Hein, Douglas Mayer, and others at Wachtell, Lipton, Rosen & Katz.
Dan Rubinfeld, Duncan Cameron, Lacey Plache and a Compass Lexecon team in Los Angeles performed various economic analyses to assist counsel in demonstrating that the merger between Universal Music Group and Univision Music Group would not harm competition. Counsel noted that our work was “absolutely critical to this success” and that the information we provided ultimately resulted in the Federal Trade Commission’s decision not to issue a Second Request. Universal was represented by Glenn D. Pomerantz, Bradley S. Phillips, and Kristina L. Wilson of Munger, Tolles & Olson LLP.
In this case, the U.S. Commodity Futures Trading Commission alleged that Mr. Dizona and five other Coral Energy Resources traders submitted biased price and volume information to Inside FERC, a trade publication, that affected its monthly natural gas price indices. The jury acquitted Mr. Dizona on charges of false reporting, but found him guilty of attempted manipulation. However, the court, relying on the testimony of Compass Lexecon expert Joseph Kalt, set aside the verdict. In support of its decision, the court relied on Dr. Kalt’s testimony that “…the price information submitted by [the Coral traders] accurately reflected the legitimate forces of supply and demand.” Mr. Dizona was successfully represented by William G. Rosch III of Rosch & Ross, and Fred W. Stumpf of Stumpf Farrimond.
The Australian Competition and Consumer Commission (ACCC) cleared Pact Group’s acquisition of Brickwood Holdings in April 2008 reversing their previous position and dropping their original opposition to the merger after Janusz Ordover of Compass Lexecon submitted a report to the ACCC showing that the proposed merger of these two producers of Polyethylene Terephthalate (PET) bottles for beverages and other products was unlikely to reduce competition. Dr. Ordover was assisted by Bradley Reiff and Wendy Petropoulos of Compass Lexecon’s Chicago office. Pact Group was represented by Nick Taylor and Paula Gilardoni of Gilbert & Tobin.
Indirect purchasers of Schering-Plough’s potassium chloride drug, K-Dur, sued Schering-Plough Corporation, Upsher-Smith Laboratories, Inc., and Wyeth, alleging that patent settlement agreements between Schering-Plough and the generic manufacturers harmed consumers by delaying entry of generic versions of K-Dur. Dan Rubinfeld, supported by Bret Dickey, Mark Rodini, and Compass Lexecon teams in the Oakland, Los Angeles, and Washington, DC offices, was retained by Schering-Plough to analyze economic issues relevant to certification of the putative class of insurers and consumers. Dr. Rubinfeld demonstrated that, because K-Dur is much less expensive than the typical branded drug, the conventional wisdom that insurers save money with generic drugs was not correct in this situation and therefore class certification should be denied. The court, citing Dr. Rubinfeld’s analysis, agreed, concluding that plaintiffs failed to demonstrate that injury could be established using common proof and denied plaintiffs’ motion to certify the putative class. Schering-Plough is represented by John Nields, Alan Wiseman, Tom Isaacson, and others at Howrey LLP.
Janusz Ordover, Duncan Cameron, and a Compass Lexecon team in Los Angeles provided economic analysis for Oracle in its $8.5 billion proposed acquisition of BEA Systems. The deal between two of the world’s largest software innovators involved the combination of two prominent suppliers of application servers and other “Middleware” software. Compass Lexecon was able to demonstrate that, for a variety of reasons, the degree of direct competition between the companies was small, and the potential synergies from the deal were significant. The deal was given the green light by the U.S. Department of Justice in March and was recently completed. Oracle was represented by Dan Wall of Latham & Watkins LLP.
US District Court for the Southern District of New York cited testimony of Bradley Reiff of Compass Lexecon in its decision on February 20, 2008 to deny certification of the indirect purchasers class in the Fresh Del Monte Pineapples Antitrust Litigation. Plaintiffs claim that Del Monte attempted to monopolize the market for fresh, whole, extra-sweet pineapples by allegedly prosecuting a false patent application and threatening potential competitors with patent litigation. Plaintiffs sought certification of an indirect purchasers class made up of final consumers of fresh Del Monte pineapples.
In denying certification the Court found that the indirect purchasers class is not manageable because plaintiffs failed to present a damages model that can be used on a class-wide basis and because plaintiffs failed to present a reliable method for distribution of damages. The Court cited the testimony of Dr. Reiff in support of its decision. In particular, the Court stated, “The Court agrees with Reiff’s conclusion that [plaintiffs’ class certification expert] has not ‘present[ed] a reliable methodology for determining damages to the class… such that plaintiffs can show that class-wide issue predominate over individual issues.’” (p. 11, quoting Reiff Declaration, ¶4). The Court also cited Dr. Reiff’s testimony when stating “Defendants offered persuasive testimony that the automatic discount program itself would attract and benefit new buyers who are not Class Members.” (p. 12).
Del Monte is represented by Carl Goldfarb, Carlos Sires and Stuart Singer of Boies, Schiller & Flexner.
Rick Flyer, Colleen Loughlin, and a Compass Lexecon team in Chicago provided economic analysis for Reuters in their $40 billion merger with Thomson. The deal involved the combination of two of the world’s three largest financial information providers. We performed extensive econometric analysis and concluded that the transaction would have no adverse impact on competition. The deal ultimately was not challenged by the U.S. Department of Justice. We were retained by Steve Newborn, Lee Van Voorhis and others at Weil, Gotshal & Manges LLP.
In this class action, Janusz Ordover, supported by Jith Jayaratne and a Compass Lexecon team in San Francisco, provided economic analysis for Tyco Healthcare and concluded that the impact on members of a proposed class of direct purchasers of pulse oximetry products in the United States could not be assessed using evidence common to the class. Judge Mariana Pfaelzer agreed, concluding that impact could not be established using common evidence, and denied the motion to certify the putative class. This decision was upheld by the Ninth Circuit. Compass Lexecon was retained by Christopher Dusseault of Gibson, Dunn & Crutcher LLP, who successfully represented Tyco.
Recently, the FTC cleared the merger of Lifespan and Care New England, the two largest hospital systems in Rhode Island with no Second Request. William Lynk of Compass Lexecon in Chicago filed two reports on behalf of our client Lifespan with support from a team in the Chicago office. We were retained by Patricia Sullivan of Edwards Angell Palmer & Dodge LLP, counsel for Lifespan.
Compass Lexecon was retained by Helene Jaffe and Fiona Schaeffer of Weil, Gotshal & Manges LLP on behalf of their client Houghton Mifflin which sought to acquire Harcourt Education, in a merger that would create the nation’s largest K-12 educational publisher. Dan Rubinfeld served as the lead economic expert on the case, supported by Rick Flyer, Mark Israel, and a team in the Chicago office. Together, they developed an econometric analysis of the relationship between instructional material prices, margins, and market structure, with which they demonstrated that the merger would not result in higher prices or otherwise harm competition. Shortly following the presentation of these results, the U.S. Department of Justice cleared the merger without requiring full compliance with its Second Request and with no other conditions.
Dan Rubinfeld, Glenn Mitchell and a Compass Lexecon team in Los Angeles provided economic analysis for Great Atlantic & Pacific Tea Company, owners of the A&P supermarket chain, in its acquisition of Pathmark, a competing supermarket chain. The A&P and Pathmarkchains had substantial geographic overlap in New York and New Jersey, which raised concerns that a large number of stores would have to be divested in order to win approval for the acquisition from the Federal Trade Commission. Although A&P was prepared to sell some stores, the value of the acquisition would have been severely diminished if a large number of stores had to be divested. Working with other consultants to outside counsel, the Compass Lexecon team provided economic analysis of relevant geographic markets and competition from non-traditional supermarkets to demonstrate that the acquisition would not lessen competition in most areas where both A&P and Pathmark stores operated. The FTC eventually agreed, allowing the acquisition to proceed with only a small number of divestitures. A&P was represented by Michael Keeley of Axinn, Veltrop & Harkrider LLP. Pathmark was represented by Bruce Prager of Latham & Watkins LLP.
Bobby Willig, Jon Orszag, and a Compass Lexecon team in San Francisco provided economic analysis to AT&T, Inc. in its acquisition of Dobson Communications Corporation. Willig and Orszag submitted testimony to the Federal Communications Commission (“FCC”) laying out an economic framework for assessing the merger and its competitive effects in Cellular Market Areas. After a thorough review, the Department of Justice and FCC cleared the merger with divestitures in only seven areas. AT&T was represented by Rich Rosen of Arnold & Porter LLP.
Bobby Willig, Jith Jayaratne, Jay Ezrielev, and a Compass Lexecon team in San Francisco and Washington, D.C. provided economic analyses for Abitibi Consolidated Inc. and Bowater Inc. in their $1.6 billion merger. The merger between the two largest manufacturers of newsprint and several other paper products in North America was closely scrutinized by the U.S. Department of Justice. Using a dynamic Critical Loss Analysis model, Compass Lexecon was able to demonstrate that the merged firm would not have the incentive or ability to raise prices following the merger. The deal was approved by the Department of Justice subject to the divestiture of one newsprint mill. Abitibi was represented by Joe Simons at Paul Weiss Rifkind Wharton & Garrison LLP, and Bowater was represented by Mark Ryan at Mayer Brown LLP.
Janusz Ordover, Bradley Reiff, Lynette Neumann, and a Compass Lexecon team in Chicago provided economic and econometric analyses showing the competitive effects of the acquisition of Laidlaw International, Inc. by FirstGroup plc. Both companies provide school bus transportation services, among other businesses. The Department of Justice closed its investigation with a divestiture in only one market (Anchorage, Alaska) -- the total number of school buses divested was approximately 800 out of a combined fleet of 62,000. FirstGroup was represented by Ronan Harty of Davis Polk & Wardwell and Laidlaw was represented by Ian John of Skadden, Arps, Slate, Meagher & Flom LLP.
Bobby Willig, Meg Guerin-Calvert, Jay Ezrielev, David Fenichel and a Compass Lexecon team were retained by counsel for the parties to assist in an economic analysis of the merger of Transocean and GlobalSantaFe, two large oil and gas contractors. The merger cleared the DOJ after Compass Lexecon provided extensive empirical analyses of geographic market issues, including assessments of rig movements and contracting, and an evaluation of the planned entry and contracting of a substantial number of new rigs. The Compass Lexecon team also assisted on the UK review of the transaction. Transocean was represented by Rufus Oliver of Baker Botts, as well as George Peretz of Monkton Chambers in the UK, and GlobalSantaFe was represented by Ben Crisman and John Lyons of Skadden, Arps, Slate, Meagher & Flom LLP.
Bobby Willig, Hal Sider, Mark Israel, Thomas Stemwedel, Joanna Tsai, and a Compass Lexecon team in Chicago were engaged by the Chicago Mercantile Exchange (CME) prior to its decision to launch a merger with the Chicago Board of Trade (CBOT). The U.S. Department of Justice expressed serious concerns over both horizontal and vertical anticompetitive impacts during the course of its protracted and intensive investigation. The Compass Lexecon team performed extensive and creative empirical analyses on the competitive impact of the merger. Employing sophisticated financial economics and econometrics, we showed that the futures contracts offered by the CME and CBOT were not close economic substitutes, even the futures contracts based on interest rates. The Compass Lexecon team also proved that the vertically related clearing services offered by CME did not constitute an anticompetitive entry barrier. These economic analyses helped persuade the Department of Justice to close its investigation. We were retained by Ben Crisman, John Lyons, and Jerry Salzman of Skadden, Arps, Slate, Meagher & Flom LLP.
Janusz Ordover, supported by Jith Jayaratne, Cristian Santesteban and a team in San Francisco, served as the damages expert in the Masimo v. Tyco antitrust litigation matter, which sought to ascertain whether Tyco had used contract restrictions to harm competition in the market for pulse oximeters (a device used by hospitals to measure the amount of oxygen in patient's blood). The Judge ruled in favor of Tyco in the damages phase of the case, stating that she accepted Dr. Ordover's "methodology in its entirety" and that Dr. Ordover’s “methodology, testimony, and conclusions…[were] the most reliable basis for the award of damages in the case.” Tyco Healthcare was successfully represented by Jim Donato of Cooley Godward Kronish LLP.
Verizon sued Vonage for patent infringement in June 2006. Professor Steven Shavell of Harvard testified on behalf of Verizon regarding damages and the need for a permanent injunction. The jury found infringement, awarded $58 million in damages, and the judge awarded a permanent injunction. The judge signed the permanent injunction order on April 6 and required Vonage to stop accepting new customers pending appeal.