Daily Archives: July 20, 2005

The least surprising lawsuit of the year

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morgan9.gifAfter this, you just knew this was coming.
The Lerach Coughlin Stoia Geller Rudman & Robbins LLP lawsuit against Morgan Stanley’s board of directors, former executives and lawyers alleges that directors breached their fiduciary duty and abused their control of Morgan Stanley by mismanaging the firm for several years, but particularly by handing out large severance payments to former Morgan CEO Philip Purcell and his former right hand man, Stephen Crawford. The lawsuit also asserts claims against the firm’s departing general counsel and outside law firm Kirkland & Ellis for legal malpractice and professional negligence in their handling of the Ron Perelman fraud case in Florida that recently resulted in a $1.57 billion judgment against Morgan.
Interestingly, the lawsuit even took a swipe at new Morgan CEO John Mack, who the lawsuit claims approved the payoffs to Messrs. Purcell and Crawford “to secure his return to power.” Mr. Mack has publicly stated that he did not know about the awards before he was hired, but that he is not going to “second-guess” Morgan board decisions that were made prior to his taking over as CEO. Mr. Mack did waive his own pay guarantee when the awards to Messrs. Purcell and Crawford became public.

New Fifth Circuit decision on family limited partnerships

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family LP.jpgFollowing on its decision last year on the popular estate planning tool of family limited partnerships, the Fifth Circuit recently issued this decision in the case of deceased Texas millionaire Albert Strangi and, in so doing, provided a guide for what not to do in utilizing a family LP. Here is a NY Times article on the decision.
Family LP’s allow parents to transfer assets to their children at a lower tax rate than is assessed on estates and gifts. Under the typical family LP, the parents retain a few shares of ownership while their children hold most of the shares. Moreover, family LP’s are often set up in an effort to shield assets from the parent’s creditors, so decisions on the vehicle are closely followed by lawyers who specialize in either estate planning or creditors rights.

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Is Baron & Budd a target?

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asbestoslg.jpgThis NY Times article reports that Dallas-based personal injury plaintiffs firm Baron & Budd is among three law firms that may be targets of a criminal investigation by the U.S. Attorney’s office of the Southern District of New York.
Documents that have surfaced in the chapter 11 bankruptcy case of G-1 Holdings (formerly known as the GAF Corporation), a manufacturer of roofing material, reflect that the debtor’s counsel has met with the U.S. Attorney in Manhattan during recent months and turned over records of interviews with former employees of three plaintiffs’ firms — including Baron & Budd — in which the employees admitted that they had coached potential asbestos claimants and witnessed efforts to influence doctors’ diagnosis of the claimants’ ailments.
As the article notes, the investigation is potentially troublesome for the plaintiffs bar because asbestos litigation has become a huge industry. A Rand Corporation study notes that almost three quarters of a million people have filed claims for asbestos-related injuries over the past 20 years, resulting in damages of over $70 billion as of 2002. Moreover, the huge unliquiated nature of future asbestos claims has been one of the primary causes of more than 75 companies, including large companies such as Bethlehem Steel, Owens Corning and W. R. Grace.

More on the NYSE’s failed corporate governance

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NYSE.gifIn what cannot be construed as an endorsment of the oversight abilities of some of the most prominent business executives in the country, this Wall Street Journal ($) article reports that nine of the 12 New York Stock Exchange directors who served on the board’s compensation committee in 2001-2002 admit in Eliot Spitzer’s lawsuit against former NYSE Chairman and Chief Executive Officer Dick Grasso that they did not understand until later the extent to which the big pay raises awarded to Mr. Grasso would cause his retirement benefits to increase to the extent that they did.
Which begs the question: Why is Mr. Grasso the one being sued here rather than the admittedly negligent NYSE board members?
This free Newsweek article addresses essentially the same subject matter, and here are the previous posts on Mr. Spitzer’s lawsuit against Mr. Grasso.
At any rate, Mr. Spitzer’s lawsuit against Mr. Grasso is really just a publicity vehicle for his gubernatorial campaign and not likely to lead to a solution for the real problem, which is the NYSE’s failed corporate governance. For competing views on what it will take to address that problem, see these earlier posts from Professor Bainbridge and Professor Ribstein.

Chevron trumps CNOOC on Unocal bidding

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unocal8.gifChevron Corp. has increased its acquisition offer for Unocal to about $63 a share and Unocal’s board is supporting that offer over the competing bid of the China National Offshore Oil Corp. Here are the previous posts on the bidding for Unocal.
Inasmuch as Chevron’s initial offer was valued yesterday at about $60.51 a share, Chevron increased its offer before a Unocal board meeting yesterday by about $2.50 a share in cash, bringing its total offer for Unocal to about $17.5 billion. Chevron increased the cash portion of the bid to 40% from 25% and raised the per-share value of the cash to $69 from $65, besting Cnooc’s offer of $67 a share. The ratio of Chevron stock to Unocal stock in the bid has not changed. Chevron can afford to toss in the extra cash into the bid as it currently has about $11 billion in cash reserves and is adding to that amount by about $1 billion a quarter as a result of high energy prices.
Meanwhile, Cnooc’s board has already authorized an increased offer by as much as two dollars a share, but it remains unclear whether Cnooc will make that play. Given the Unocal board’s endorsement of the modified Chevron bid, and the political and regulatory obstacles confronting its bid, Cnooc may elect to fold at this point.
Interestingly, investors did not react all that well when Chevron announced that it had won the bidding for Unocal in April as the price of Chevron’s stock declined out of out of concern that Chevron was buying at a peak price was ignoring financial returns in favor of increasing oil and gas reserves. However, since that time, energy prices have continued to climb and there is now greater market consensus that such prices are likely to be sustained over the long term.