Sep 18, 2007

On September 17, the European Court of First Instance rendered judgment in the long-awaited and controversial Microsoft case. Cleary Gottlieb represented RealNetworks, and was co-counsel to the European Committee on Interoperable Systems (ECIS) and the Software and Information Industry Association (SIIA). The firm also advised a variety of clients in the United States and European Union interested in the implications of the case. The case involved two broad issues:

The Court upheld the European Commission's finding of illegal tying of Windows Media Player to Windows, which the Commission had found excluded competition in streaming media players and contributed to the maintenance of Microsoft's desktop software platform monopoly.

The Court also upheld the European Commission's finding of illegal refusal to supply interoperability information that third-party server manufacturers needed to enable their workgroup servers to communicate fully with Microsoft Windows clients and server networks. This resulted in monopolization of server markets, and contributed further to monopoly maintenance of the desktop software platform monopoly.

European antitrust rules, like Section 2 of the U.S. Sherman Act, forbid companies from abusing their dominant position in an industry to the detriment of consumers and the structure of competition. The Microsoft ruling represents a landmark interpretation of that ban. The decision also supports the stance of EU regulator, which has been more inclined than the U.S. Department of Justice to find aggressive behavior by dominant companies as abusive. At the same time, the analysis in the judgment is close to the rule of reason analysis applied by the DC Court of Appeals in Microsoft II.

Mar 18, 2008

Cleary Gottlieb, as a co-counsel to Deutsche Telekom, won the dismissal of €3.9 billion claims before the Commercial Court of Paris on March 18. The claims, brought in 2005 by Vivendi Universal, were related to a long-standing, multi-jurisdictional battle for the control of PTC, a leading Polish mobile telephone operator.

PTC was founded in 1995 by Deutsche Telekom and Elektrim, a Polish company. Beginning in 1999, Vivendi and Elektrim entered into a series of investment agreements. The agreement established Telco, a joint-venture controlled by Vivendi. Vivendi and Elektrim agreed that Elektrim would contribute its PTC shares to Telco. Deutsche Telekom argued that the transfer was ineffective because it was in violation of the PTC Shareholders' agreement, and commenced arbitration proceedings in Vienna.

In August 2003, while the Vienna arbitration was pending, Deutsche Telekom and Vivendi engaged in settlement discussions. In September 2004, Deutsche Telekom discontinued the settlement discussions. Two months later, the Vienna Tribunal ruled in favor of Deutsche Telekom, deciding that Elektrim's PTC shares were wrongfully transferred to Telco.

In the recent litigation before the Commercial Court of Paris, Vivendi sought more than €3.9 billion in damages on the grounds that Deutsche Telekom wrongfully terminated the settlement negotiations and that Deutsche Telekom's actions eventually resulted in the "spoliation" of Vivendi's investment in PTC.

The Court dismissed Vivendi's claims. In its decision, the Court upheld Deutsche Telekom's defense that given the context of the discussions and since the parties had agreed not to suspend the Vienna arbitration proceedings pending their settlement discussions, they remained free at any time to opt for a litigated, rather than negotiated, settlement of their dispute.

Feb 19, 2008

Cleary Gottlieb successfully represented a German investor in a test case before Germany's Federal Fiscal Court, the highest German tax court, regarding the taxation of so-called index certificates with a partial repayment guarantee (i.e., 10%). The German Federal Finance Ministry, which participated in the court proceedings, had previously issued a circular according to which even the guarantee to repay only a small part of the issue price causes all of the capital gains realized from the sale of the certificates to constitute taxable income to private investors. The Federal Fiscal Court, however, held that 90% of the gain, (i.e., the portion of the gain that can be allocated to the non-guaranteed part of the issue price), is generally exempt from German income tax. Index certificates with small capital guarantees were issued in the late 1990s to comply with stock exchange requirements at the time. The landmark decision of the Federal Fiscal Court resolves the long-term uncertainty troubling investors holding index certificates.

Jan 25, 2008

Cleary Gottlieb won in Connecticut federal court a motion to dismiss a lawsuit against Union Carbide Corporation and its pension plan on January 25. Praxair, which Union Carbide spun off in 1992, claimed that it had a right under three pension plan-related contracts with Union Carbide to insurance company demutualization proceeds received by Union Carbide from Prudential Insurance Company of America in 2002. In dismissing ERISA fiduciary duty claims against co-defendants The Dow Chemical Company and Prudential, the court ruled that the demutualization proceeds were not plan assets at the time of the spinoff because the proceeds did not exist until the actual demutualization process, and therefore, the Praxair plan participants had no rights to the proceeds.

The court dismissed all of Praxair's state law claims against Union Carbide for lack of subject matter jurisdiction.

Jul 11, 2007

Cleary Gottlieb successfully represented ALROSA Company Limited, Russia's largest diamond producer, in its challenge of a European Union decision prohibiting ALROSA from selling any of its rough diamonds to De Beers, the world's largest diamond producer. The European Union had previously prohibited all dealings between the two companies with effect from June 1, 2009, following the Commission's rejection of their five-year trading agreement, signed in 2002. At the time, the rough diamonds reserved for De Beers under the trade agreement represented roughly half of ALROSA's annual production and all of its diamond exports.

The Commission had initially accepted ALROSA and De Beers' joint proposal to reduce the annual volume of rough diamonds sold under the trade agreement. Following a change in the Commission's membership and a largely negative response to the Commission's market testing of the proposed settlement, the Commission decided, without explanation, to accept De Beers' unilateral commitment to cease purchasing rough diamonds from ALROSA beginning in 2009. In exchange, the Commission agreed to terminate the competition proceedings pending against De Beers and ALROSA.

The Court of First Instance, in the first case to interpret the Commission's new commitment procedure, has annulled the Commission's acceptance of De Beers' unilateral commitment. In rejecting the proposed prohibition on sales as disproportionate, the Court held that "The fact that an undertaking had proposed commitments to the Commission does not relieve it from its duty to assess whether these commitments are proportionate." The Court also ruled that ALROSA had been denied the right to know the grounds for the Commission's rejection of the parties' original joint commitments, as well as an opportunity to make known its views on the Commission's decision accepting De Beers’ unilateral commitment.

Jun 16, 2005

Cleary Gottlieb has now defeated the last of many challenges to Argentina’s debt exchange offer, bringing an end to two months of intense litigation activity and permitting the cancellation of over $60 billion of non-performing sovereign debt.

Following the favorable May 2005 appeals court decision denying creditor attachments to seize tendered bonds, Cleary Gottlieb moved to lift the stay on closing of the offer, and sought the immediate issue of the appellate court mandate. Unsuccessful in their arguments against these two actions, the creditors then sought the extraordinary relief of recalling the Court of Appeals' mandate, claiming that they would otherwise be unable to seek rehearing. The Court of Appeals denied this motion as well.

In a separate action before the U.S. District Court for the Southern District of New York, another creditor sought to attach the collateral from the Republic's Brady bonds issued in 1992, proceeds of which were to be paid to tendering Brady bondholders. The court denied not only these attachment attempts, but also the subsequent creditor motion to reargue.

Nov 20, 2007

Cleary Gottlieb won the dismissal of a lawsuit against Sanofi-Aventis by Rhodia, formerly a subsidiary of a predecessor of Sanofi-Aventis, for reimbursement of costs Rhodia incurred remediating environmental damages at an elemental phosphorus production site in Montana that Rhodia acquired from Sanofi-Aventis’s predecessor in 1998.

In moving to dismiss the complaint, Sanofi-Aventis argued that Rhodia had previously released its claims for contribution under CERCLA and common law, when the parties entered into an indemnity agreement to settle Rhodia’s environmental claims against Sanofi-Aventis’s predecessor and that, in any event, any dispute about the scope of Rhodia’s release is arbitrable under the agreement’s arbitration clause. In dismissing the complaint, Chief Judge Brown of the U.S. District Court in Trenton rejected Rhodia’s argument that its claims fell outside the scope of the indemnity agreement.

The Court also granted Cleary Gottlieb’s motion on behalf of Sanofi-Aventis’s co-defendant and indemnitee Bayer CropScience, which was also in the chain of title to the Montana site, on the ground that Rhodia had effectively released its CERCLA and contribution claims when it entered into an asset contribution agreement with Bayer in 1998.

The Court deferred a ruling on Rhodia’s one remaining claim for negligence, but stayed prosecution of that claim pending the outcome of the arbitration between Rhodia and Sanofi-Aventis.

If Rhodia seeks arbitration against Sanofi-Aventis, it will reprise a prior arbitration between the parties in which Cleary Gottlieb represented Sanofi-Aventis, and in which the arbitrators rejected Rhodia’s environmental indemnification claims on the ground that they had been released.

Oct 10, 2006

Cleary Gottlieb successfully represented the Republic of Congo (Brazzaville) in two Fifth Circuit appeals from attempts by judgment creditors of the Congo to satisfy their claims by executing upon the Congo’s right to receive royalty oil from petroleum exploration projects in the Congo in FG Hemisphere Associates v. Republique du Congo, and Af-Cap, Inc. v. Republic of Congo,in FG Hemisphere Associates v. Republique du Congo, 455 F.3d 575 (5th Cir. 2006), and Af-Cap, Inc. v. Republic of Congo, 2006 WL 2424778 (5th Cir. Aug. 23, 2006).

The net result of these decisions is to vacate writs of garnishment purporting to execute upon royalty obligations owed to the Congo by oil development corporations, to reverse a turnover order directing the Congo to sign over such royalty obligations to creditors, and to vacate an order holding the Congo in contempt for its refusal to comply with the turnover order on grounds of sovereign immunity.

In FG Hemisphere, the Court of Appeals held that lower courts must determine whether a foreign state’s property is "in the United States" and "used for a commercial activity in the United States" before it may be subject to attachment or execution under § 1610 of the FSIA every time a writ of garnishment or other form of execution on foreign state property is sought; the fact that the property was previously in the United States does not satisfy the statutory test. The court also held that these "situs snapshot" determinations must be made separately for each piece of property targeted for execution, and that any execution must satisfy all the requirements of state law even where no immunity is found under the FSIA.

In Af-Cap, the Fifth Circuit further held that non-monetary obligations (such as the obligation to deliver royalty oil) are not subject to garnishment under Texas law; that a contractual consent of a foreign sovereign to jurisdiction in New York is insufficient to support a finding of personal jurisdiction under the FSIA in Texas (which would be necessary to support a turnover order); and that the FSIA prohibits monetary contempt sanctions against a foreign state (a point on which the Congo was supported by the U.S. Department of Justice as an amicus curiae).

Mar 06, 2007

On March 6, the Appellate Division, First Department, reversed a decision of the state trial court and vindicated the audit power of Cleary Gottlieb client the Office of the State Comptroller.

The dispute concerned whether the Comptroller's audit powers apply to the Superintendent of Insurance when acting as the statutory liquidator or rehabilitator of distressed insurance companies, which is a function assigned exclusively to the Superintendent by statute. The Superintendent argued that he was acting as a private court-appointed receiver and not as a state officer, and so was not accountable to the Comptroller in that capacity. Looking to a 1938 amendment to the New York State Constitution and its effectuating legislation, the First Department rejected this reasoning, and agreed with our position that when "acting as an officer of the court [in liquidation proceedings], the Superintendent does not lose his status as an officer of the state." The court further explained the Comptroller's audit was necessary to assure the integrity of the Superintendent's operation and management of distressed insurance companies, noting that "[a]cceptance of the Superintendent's argument would permit the [Superintendent] to avoid any oversight of the manner in which it handles the assets of an insolvent insurer, which is inconsistent with [state law.]" The court also upheld the Comptroller's right to audit the Superintendent's reports of unclaimed funds under the Abandoned Property Law.

The decision is stayed pending appeal to the New York Court of Appeals.