Weil Secures Significant Appeals Victory For Zale Corp.

Thursday, December 13, 2012 - 12:42

Weil obtained a significant victory on behalf of client Zale Corporation on November 30, 2012, when the U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of the putative securities class action Rains v. Zale Corporation, et al.

Investors who had purchased Zale securities sued the jewelry retailer and certain of its officers and directors in the U.S. District Court for the Northern District of Texas in November 2009 alleging that defendants had failed to account properly for certain advertising and other expenses for the years 2007, 2008 and 2009, which led to a restatement of net income and a later drop in share price. Following consolidation, the district court dismissed the original class action complaint but granted leave to amend. The putative class plaintiff filed an amended complaint, and on August 1, 2011, the district court dismissed the amended complaint, with prejudice, for failure to plead scienter. The plaintiff subsequently filed a Rule 59(e) motion to alter or amend the judgment, attaching a Proposed Second Amended Complaint. Following the denial of the Rule 59(e) motion, plaintiff appealed the dismissal of its putative class action.

The Court of Appeals affirmed the district court’s dismissal, likewise holding that the putative class plaintiff failed to adequately plead scienter. Specifically, the appellate court held: (i) it was not “severely reckless” for defendants to rely on information provided by its marketing department; (ii) the district court did not improperly draw an inference from the SEC’s decision not to charge Zale’s VP of marketing, Rebecca Higgins, with fraud (the district court merely agreed with the SEC’s decision); (iii) the putative plaintiff failed to allege that the officials responsible for Zale’s public financial statements knew the information at issue was false, or that they recklessly ignored the falsity of that information; (iv) the public statements made by Zale’s officials that they would scrutinize marketing and advertising expenses did not suggest that Zale intended to double-check the information at issue; and (v) Ms. Higgins acted with the “intent to maintain the good appearance of her department” and not with the intent to defraud investors.

The Weil Litigation team was led by Yvette Ostolaza (Dallas), co-chair of the firm’s Complex Commercial Litigation practice, and also included Complex Commercial Litigation partners Yolanda Garcia (Dallas), Michelle Hartmann (Dallas), and Ralph Miller (Washington, DC); Complex Commercial Litigation partner-elect Gregory Silbert (New York); and Litigation associates Adam Banks (New York), Casey Burton (Dallas), Erin Eckols (Dallas), and Giana Ortiz (Dallas).

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Gil Strauss will join Weil as a partner in the European Finance practice. Specializing in U.S. securities, Gil joins from Freshfields, where he leads their high-yield practice. Mr. Strauss trained at Simpson Thacher in New York and has represented underwriters, private equity sponsors and issuers in high-yield bond offerings, restructurings, initial public offerings and other corporate finance transactions. ‪ 

He is tasked with leading the build-out of Weil’s European high-yield practice in order to serve the increasing demand by sponsors and banks in the context of new money deals, refinancings and restructurings. Mr. Strauss has extensive experience working for both private equity sponsors and underwriters on their high-yield deals and will leverage this expertise when working with Weil’s Chambers Band 1 ranked European private equity and sponsor banking practices. 

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A Weil team led by New York M&A partner Michael Aiello advised the special committee of McMoRan Exploration Co.’s board of directors in the company’s $3.4 billion sale to Freeport-McMoRan Copper & Gold Inc. (FCX), a leading international mining company. McMoRan is an independent public company engaged in the exploration, development and production of natural gas and oil in the Gulf of Mexico. Upon closing, McMoRan shareholders will receive a distribution of units of a royalty trust that holds a five percent overriding royalty interest on future production in McMoRan’s existing ultra-deep properties.

McMoRan’s sale to FCX is part of a three-way merger through which FCX also will acquire Plains Exploration & Production Company, an independent oil and gas company that acquires, develops, explores and produces oil and gas in the U.S. for $6.9 billion in cash and stock. The three-way merger has a total deal value of approximately $20 billion and is expected to close in the second quarter of 2013.

In addition to Michael Aiello, the Weil team advising the special committee of McMoRan’s board of directors included Energy partner Rodney Moore (Dallas/Houston); Capital Markets partner Matthew Bloch (New York); Banking & Finance partner Richard Ginsburg (New York); Tax partner Jared Rusman (Dallas); Technology & IP Transactions partner Charan Sandhu (New York); Litigation partners John Neuwirth and Greg Danilow (both of New York); Environmental partner Annemargaret Connolly (Washington, DC); Employee Benefits and Executive Compensation partner Amy Rubin (New York); Antitrust partner Steven Newborn (Washington, DC); Real Estate partner Samuel Zylberberg (New York); Antitrust counsel-elect Vadim Brusser (Washington, DC); M&A associates Alex Clavero, Matthew Falcone, Sachin Kohli, and Frank Martire (all of New York); Energy associate Sacha Jamal (Dallas); Capital Markets associate Andrew Woodworth (New York); Tax associate Randell Gartin (Dallas); Environmental associate Thomas Goslin (Washington, DC); Employee Benefits and Executive Compensation associates Zahava Blumenthal and Eric Schecter (both of New York); and Real Estate associate Elliot Ganchrow (New York). 

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Weil was ranked sixth overall among the Top 25 Innovative U.S. Law Firms in Financial Times’ U.S. Innovative Lawyers Report 2012, up 16 places from last year. This was the largest gain made by any firm this year, and was specifically noted in the Financial Times’ commentary. 

Weil also was recognized as being among the top U.S. firms in the following categories:

Intellectual Property, for advising Yahoo! Inc. in connection with Alibaba Group Holding Ltd.’s $7.1 billion share buy-back, and for negotiating the continuing IP terms (led by Technology & IP Transactions partner Karen N. Ballack).

Lawyers to the Innovators, for providing counsel on a series of digital media intellectual property cases that challenged business models and helped to create more competitive markets, including DMX Inc. and Sirius XM Satellite Radio (led by Intellectual Property partner R. Bruce Rich).

Finance, for leading Lehman and WaMu out of bankruptcy, resolving two of the largest and most complex insolvency cases in history (led by Business Finance & Restructuring partners Lori R. Fife and Brian S. Rosen, respectively).

Energy, for devising a complex deal to allow client Kinder Morgan Inc.’s $38 billion acquisition of El Paso Corporation, creating the fourth-largest energy company in the U.S. (led by Corporate partners Thomas A. Roberts and R. Jay Tabor).