Slimed Person cropped SLIMESylabus [sic]

When the business entities that were utilized in a Ponzi scheme filed for bankruptcy, a plaintiff lender-investor lacks authority to bring fraud-related claims arising out of the Ponzi scheme against an earlier lender-investor, absent an allegation of an injury separate and distinct from an injury suffered by the entities. Such fraud-related cause of action [sic] is derivative and belongs to the bankruptcy estate.

The quote is the summary of a published Minnesota Court of Appeals decision this week ruling against a lender called Greenpond South LLC (“Greenpond”) in Greenpond’s lawsuit against another lender, General Electric Capital Corporation (“GECC”).

The description of the legal holding is bland and technical but the decision reflects underlying allegations of serious wrongdoing by the GECC, the winning party to this lawsuit.

To summarize, GECC was a lender to Minnesota’s most famous swindler, Tom Petters. GECC caught on to Petters’ fraud. GECC allegedly kept Petters’ secret until it had recovered the money it lent. GECC also knowingly provided Petters with a “To Whom It May Concern” letter praising Petters’ character, knowing that the praise was undeserved and that Petters would use that letter to defraud other potential lenders. Although the decision does not say so, it does not appear that GECC did anything to stop Petters’ ongoing fraud once it had gotten its own money out.

The basic holding of the Greenpond v. GECC case, however, is not that GECC did nothing wrong. Roughly, it is that the Bankruptcy Trustee brought its own action against GECC, which it settled. In other words, at least in theory, GECC already paid the piper for its alleged role in the scheme. Greenpond cannot sue GECC a second time.


St_Jude_Medical_pacemaker_with_ruler2As we said last month, St. Jude Medical has brought a complaint against short-seller Muddy Waters Consulting and others for false advertising, conspiracy and the resultant manipulation of the public markets. Essentially, St. Jude’s 33-page lawsuit alleges that Muddy Waters’ business model is to malign companies, like St. Jude Medical, with false or misleading public criticism of their business practices or products, so that Muddy Waters, which has “shorted” stock in the target company (see below), can make money.

The basic idea of shorting  or short-selling is that an investor sells stock he does not actually own on Date 1, with a promise to the buyer that he will deliver the stock on later Date 2. If the share price drops between Date 1 and Date 2, the short-seller makes money because buyer, who is correspondingly going “longer” on the stock, is bound by the Date 1 sale price. If the share price goes up between Date 1 and Date 2, the short seller takes a loss. The details of short-selling are, of course, more complicated.

At issue in St. Jude v. Muddy Waters, are statements by Muddy Waters people questioning the safety of St. Jude implantable cardiac rhythm management (“CRM”) devices, colloquially known as pacemakers. Was this merely a ploy to drive St. Jude’s price down? Muddy Waters has now filed its answer.


handgun-231699_1280Danna Back dated someone on and off for several years who, in judicial opinons, goes by the name of “D.H.”  Back and D.H.’s was a rocky relationship and in 2006 Back moved out of the house that they co-owned and shared.

Then Ms. Back started dating Nick Super who appears to have toxically combined anger management issues with a love of guns.

Super was not fond of D.H. and Back knew that. She knew that Super had threatened D.H. with a gun several times, Super had fired shots at D.H.’s garage, and Back knew that Super was “known to pull his gun out on anybody.”

For reasons best known by herself, at around 3:00 a.m. on January 1, 2007, Back decided to go to D.H.’s house. Guess who she called to give her a ride to D.H.’s house? And guess what happened then?


Arrowsmith's_map_of_the_world_(1812)Personal jurisdiction jurisprudence in the 21st century is something of a pet peeve of mine (most recent post here (linking to still more posts)). To decide whether they can impose jurisdiction over a party, courts analyze whether the party could “reasonably foresee” being “haled” into a court within the jurisdiction. My most recent post on the subject applauds a move in the right direction by the U.S. Court of Appeals for the Eighth Circuit. That is, I believe the rule should be:

When a foreign company knowingly engages in business with, say, a Minnesota company (knowing it is engaging with the company and knowing the company is in Minnesota), for any protracted period of time (a vague term that might not be determinable with precision by courts ever), in the absence of a contractual exclusive forum selection clause identifying a non-Minnesota forum, the foreign company should be charged with knowledge that, if a dispute ever arises with the Minnesota company over their business interactions, the foreign company might have to defend a lawsuit in Minnesota.

Doesn’t that make sense to you?

In contrast, the recent linked decision makes no sense to me.




Update (October 20, 2016): Here is the Shattuck school’s response to the motion for one trial by three plaintiffs, all allegedly sexually abused by the same Shattuck teacher (I discuss plaintiffs’ motion to consolidate in the original post):

From Shattuck’s perspective, the Motion to Consolidate for Trial is a prejudicial attempt to create a montage of a single Plaintiff composed of the testimony of several. If the Motion is granted, cautionary or limiting instructions would have little to no effect as the jury blurs together facts on foreseeability, damages, and other material issues in a way that would significantly prejudice Shattuck and create a composite Plaintiff who does not exist. This is not a class-action. These are three separate cases commenced by three different Plaintiffs, each with unique testimony on his contacts with Seibel and therefore unique claims of liability and damages.

The school argues that allowing the three plaintiffs’ lawsuits to be consolidated for trial would “effectively creat[e] a single Plaintiff whose claims would be virtually impossible to defend.” That seems to me to be an unjustifiable overstatement. I do not believe it is unreasonable or unlikely to expect one jury to be able to separate and distinguish three plaintiffs’ claims. I am predicting a win for the plaintiffs’ motion to consolidate. We’ll see…

Original post (October 12, 2016): I have repeatedly described civil trial as staging a play (most recently, here) with no rehearsals and with some of the actors and stagehands (that is, one’s adversaries) determined to make the production a failure.

The judge always plays a central role, literally and figuratively, in these productions not only in the performance but in the pre-performance staging. A great many of a judge’s decisions on logistics are determined by court rules, the rules of evidence, and other written guides. But there is no way that any set of written rules can apply to the multitude of decisions required to stage a trial.

Some judges receive high praise for their expertise in conducting trials, their perfomance before trials and during them. Other judges are ridiculed or even excoriated by trial lawyers because some fail to fill the vacuum of decision-maker before trial (and/or during trial). They are absent. They dither. They are not in control. They are inexperienced or they just do not care. And, of course, other judges are accused of bias, rightly or wrongly. (These criticisms are under one’s breath or private, of course. One risks repercussions for criticism of judges, both formally and informally.)

U.S. District Court Judge Ann D. Montgomery  (D. Minn.) enjoys broad admiration and respect throughout the Minnesota bar. And she now presides over the pre-trial skirmishing in the Doe v. Shattuck-St. Mary cases…


map-525349_1280Most lay people and many novice litigators do not know what “pleadings” are. I did not know when I started practicing in the year of the first flip phone, the Motorola StarTAC, and 20 years B.T. (before the reign of Emperor Trump the Terrible).

When I started working as a lawyer, the firms where I worked kept “pleadings” in a “pleadings folder” or a “pleadings spindle,” and the law firms included every document connected to a case that included the case caption in these “pleadings files” (complaint, answer, scheduling order, interrogatories, document requests, motions, and so on). Naturally, I assumed these were all pleadings.

These are not all “pleadings.”

“Pleadings” are “the formal statements of the cause of action or defense.” They are critical to our legal system. They are complaints, answers, counterclaims, cross-claims, third-party claims and responses thereto. They are the metes and bounds, i.e., the boundaries of the litigation, identifying who, exactly, is suing, who is being sued, and for what. The pleadings also include what the defenses to the claims are.

It is tricky for courts to decide when a litigant is allowed to amend a pleading. High stakes might ride on the decision. At times, amendment of a pleading can turn a case upside down, adding months or even years to the case. At other times, denying a litigant the right to amend a pleading can destroy the litigant’s case by foreclosing the chance for the litigant to correct an error, to add a party, a claim, or a defense.

Courts must strike a balance.



Be the first person to name the courthouse and win a $10 gift card. (Put the answer in a comment to this post.) (And, no, this was not a set from the dystopian movie classic, Brazil,  but maybe it could have been.)



Thief Criminal Burgler RobberUpdate (October 14, 2016): The Securities & Exchange Commission (“SEC”) brought suit against Mr. Louks for securities fraud in September 2015. The SEC accuses Mr. Louks of defrauding some 90 “investors” in FiberPoP, a bogus “investment opportunity.” This is a civil action, not a criminal prosecution. Therefore, Mr. Louks is not entitled to the appointment of a public defender as indigent defendants in criminal prosecutions are as a matter of United States constitutional law.

When Mr. Louks was alleged to be collecting money from investors after the SEC sued him (the subject of the earlier post, below), he was ordered by the Court to stop and to submit an affidavit to the Court promising that he had stopped.  Without the benefit of counsel, he crafted an affidavit that was unsatisfactory in the opinion of U.S. Judge Patrick J. Schiltz (D. Minn.). 

This resulted in Mr. Louks be sent to jail for contempt of Judge Schiltz’s order.

Fortunately for Mr. Louks, Judge Schiltz then saw to it that Mr. Louks was appointed a public defender, who helped Mr. Louks with a clearer second amended affidavit. (The explanation for the hand-written page of the affidavit is here.) And Judge Schiltz promptly ordered Mr. Louks’ release from jail and the contempt order purged.

This calls to mind the “Civil Gideon” movement, an effort to establish a right for the poor to be represented in civil litigation, not just criminal cases.

The primary counter-argument against proponents of Civil Gideon, presumably, is that such a right would cause an explosion of civil litigation. It would over-tax and over-burden court systems that already struggle under their current caseloads. But maybe it could be limited to certain kinds of cases? Louks’ situation highlights the fact that the line between civil and criminal law can blur. Being forced to navigate our legal system without a lawyer can lead to devastating hardship in either arena.


Men whipsawing lumber for boat building, Yukon Valley, ca. 1896

Men whipsawing lumber for boat building, Yukon Valley, ca. 1896

I recently posted about an 81-page complaint that U.S. District Court Judge Patrick J. Schiltz (D. Minn.) threw out of court, finding it to have been a violation of Rule 8, the federal rule requiring that complaints be “short” and “plain.

What about a 48-page complaint in a class action? Too long? Too short?

Plaintiffs bring this class action lawsuit individually and on behalf of similarly situated members of the Classes (defined below) against Defendants for their refusal to pay for Harvoni—a medically necessary treatment that can effectively cure the chronic Hepatitis C (“CHC”) of Plaintiffs and members of the Classes. Defendants wrongfully denied coverage for Harvoni based on a desire to decrease costs and increase profits, in breach of the health insurance contracts Defendants entered into with Plaintiffs and members of the Classes and the implied covenant of good faith and fair dealing and, also, in violation of the Consumer Fraud Act, Minn. Stat. § 325F.69, et seq. (the “CFA”) and the Employee Retirement and Income Security Act of 1974, 29 U.S.C. § 1001, et seq. (“ERISA”).


pinkie_pie_bubble ponyUpdated post (October 7, 2016): Plaintiff Bubble Pony tried to amend its complaint a second time and U.S. District Court Judge Franklin L. Noel denied BP’s second motion to amend this week. I discussed the motion below because BP withheld its reasoning for the motion from the public, supposedly out of respect for a court order.

The linked order solves the mystery of BP’s redacted motion. BP wanted the court to see that the vague commitment that Defendant Facepunch made via email (which the Court already held too weak to be construed as a binding contract) was also made in a text message exchange. And guess what? Judge Noel held that 2 x 0 = 0, denying the motion.

This situation underscores a common and fundamental misunderstanding among many people and even some businesses about the nature of contract law under U.S. and state law: it is not enough to have “a writing” — just anything in writing — to make a contract legally enforceable.

Here is another similar common misunderstanding: just because you did not SIGN a contract that you entered into with another person does not necessarily mean that you will not be held legally bound by a contract or liable under some other theory of liability (such as unjust enrichment, promissory estoppel, or even fraud). “[W]hen an agreement is reduced to writing but is signed by only one of the parties, it is binding on the non-signing party if that party has manifested consent to its terms….What is critical is mutual assent to be bound.” The quote is from a 2002 Tennessee court decision but it expresses a basic principle of contract law. (Having said that, you will likely be on more solid ground if you get a counter-party to sign a contract than you will be if you proceed with an unsigned contract.)