2018 Annual Review

Commercial Resolve

High-risk, viral litigation; government investigations that span agencies and jurisdictions; sophisticated financings and intricate corporate transactions—the opportunities and challenges our clients face are complex, involve a host of legal issues and unfold quickly. Helping clients navigate these waters requires a deep understanding of their businesses and market positions. Following are some of the commercial solutions we worked with clients to achieve over the past year.

Robert D. Hays, Chairman

GettyImages-171580786
~US$5B

in construction costs recovered

No-fault settlement enabled merger and a rate cut for customers

Stock up ~$3/share (60%+) within minutes of ruling

YTD high reached on day of settlement: >50% higher than YTD low

An Energy Major Weathers a Litigation Superstorm

Managing an Existential Threat

Following the bankruptcy of the primary contractor and withdrawal of its construction partner, SCANA Corporation’s electric utility subsidiary, South Carolina Electric & Gas Co. (SCE&G), announced its own decision to abandon continued construction of two new nuclear units at the V.C. Summer Nuclear Power Plant. In the wake of intense opposition to its announcement, SCE&G sought to defend its reputation, recover some $5 billion in construction outlays per contractual terms, and clear intense resistance to its sale to Virginia-based Dominion Energy. SCE&G faced concurrent ratepayer class actions, shareholder derivative lawsuits, securities class actions, regulatory proceedings, and criminal and SEC investigations. Politically and publicly, it also faced a deluge of accusation and opposition.

Litigating Reputation

A multi-practice, cross-office K&S team coordinated over a period of 18 months to defend against the suits and lead defense in the criminal and SEC investigations. Challenges were manifold, including pronounced opposition from multiple regulators; legislators imposing a retroactive rate cut with the potential to bankrupt the company; and promises from all sides of the political spectrum to punish the utility. While the traditional litigation continued at a furious pace, it became clear that the regulatory proceedings before the South Carolina Public Service Commission (PSC) were mission critical. The PSC would decide the go-forward rate and SCE&G’s request to approve its merger with Dominion. K&S led the defense in a multiweek evidentiary hearing before the PSC. The hearing involved more than 30 witnesses and some 200 exhibits, as well as livestreamed proceedings, vocal on-site opponents, and unparalleled press scrutiny.

Securing Hard-Won Stability

Ensuring SCANA’s viability, the PSC voted unanimously to approve the company’s rate plan and Dominion’s acquisition bid. Fluctuating during the proceedings, the company’s stock price increased within minutes of the ruling, closing on a year-to-date high. The proceedings also facilitated a favorable class-wide settlement of certain of the ratepayer class actions, also critical to the closing of the merger and positioning the company for future growth.

GettyImages-171580786
~US$5B

in construction costs recovered

No-fault settlement enabled merger and a rate cut for customers

Stock up ~$3/share (60%+) within minutes of ruling

YTD high reached on day of settlement: >50% higher than YTD low

Corporate-and-Securities-Litigation
Corporate and Securities Litigation/Securities Enforcement and Litigation/Commercial Litigation/Class Action Defense

David Balser,
Atlanta

Jon Chally,
Atlanta

Michael Smith,
Atlanta

Lisa Bugni,
Atlanta

Ashley Parrish,
Washington, D.C.

Emily Newton,
Atlanta

Brandon Keel,
Atlanta

Julia Barrett,
Austin

Paige Nobles,
Atlanta

Melanie Papadopoulos,
Atlanta

Special-Matters-and-Government-Investigations
Special Matters and Government Investigations

Paul B. Murphy,
Atlanta

Dixie Johnson,
Washington, D.C.

Naana Frimpong,
Atlanta

Amy Madigan,
Atlanta

Amy Boring,
Atlanta

Katherine Martin,
Atlanta

Victoria Bohannan,
Washington, D.C.

Close
90,000

documents reviewed
(500,000+ pages)

13

fact witnesses deposed

6

K&S offices involved (from Los Angeles to Tokyo)

Copy That: Major Investor Stops Controversial Xerox Transaction

Battling for Control and Valuation

In early 2018, Xerox’s third-largest shareholder, Darwin Deason, sought to block a proposed $6.1 billion transaction in which Xerox agreed to sell a controlling stake in the company to FujiFilm Holdings Corp. Believing the proposed transaction provided no financial upside to the Xerox shareholders—it would allow Fuji to “take control of Xerox without spending a penny,” according to Fuji’s chief executive—Mr. Deason, together with Xerox’s largest shareholder, Carl Icahn, launched a campaign to stop the arrangement.

Proving Misconduct

On behalf of Mr. Deason, the K&S team filed suit alleging that Xerox had struck a deal that not only did not maximize shareholder value but also resulted from negotiations led by a conflicted CEO. K&S partners Israel Dahan, Bobby Meadows and Rich Marooney presented 12 witnesses and entered hundreds of exhibits into evidence within a two-day “mini-trial” to prove their case.

Correcting Board Conflicts

Mr. Deason won the lawsuits. Within hours of calling the last witness, a New York State Superior Court judge ruled that Xerox’s then-CEO and a majority of its directors had likely violated their fiduciary duties in approving the transaction. The court issued an order stopping the deal. A few weeks later, in a settlement with Mr. Deason, Xerox agreed to appoint a new CEO and replace five of its directors. Partners Dahan and Marooney were named among National Law Journal’s Winning Litigators for 2018 for leading the trial team.

90,000

documents reviewed
(500,000+ pages)

13

fact witnesses deposed

6

K&S offices involved (from Los Angeles to Tokyo)

Mergers-and-Acquisitions
Mergers and Acquisitions/Corporate Governance

Jim Woolery,
New York

Rob Leclerc,
New York

John Anderson,
Atlanta

Jon Wu,
New York

Trial-and-Global-Disputes
Trial and Global Disputes

Rich Marooney,
New York

Bobby Meadows,
Houston

Israel Dahan,
New York

Bruce Baber,
New York

David Fine,
New York

Peter Isajiw,
New York

Ed Kehoe,
New York

Emmett Murphy,
New York

Paul Straus,
New York

Jennifer Chiang,
Los Angeles

Evan Ennis,
New York

Ryan Gabay,
New York

Alicia Gilbert,
Los Angeles

Bobby Gray,
New York

Nava Sanders,
New York

Sal Subasingh,
Singapore

Chris Bailey,
Tokyo

Harry Burnett,
New York

Close
GettyImages-183833726
4-year

multibillion-dollar securities litigation resolved

<2%

PwC Brazil final share of overall Petrobras settlement

PwC Brazil Resolves Multibillion-Dollar Securities Matter

Reputation Is Everything

As the external auditor for Petróleo Brasileiro S.A. (Petrobras), Pricewaterhouse Coopers Auditores Independentes (PwC Brazil) looked to vigorously defend its reputation in a securities class action and six individual investor actions arising out of a corruption investigation of historic proportions (referred to as “Lava Jato” or Operation Car Wash) that led to the indictment of more than a hundred company executives and government officials, including the former president of Brazil. Although majority-owned by the Brazilian government, the energy major was traded publicly in both the United States and Brazil. Investors in the company’s U.S.-listed shares and bonds sued Petrobras, PwC Brazil and others, alleging securities fraud in connection with billions of dollars in U.S. securities, as well as claims under state and Brazilian law.

Clearing a Path To Resolution

Facing major U.S. securities litigation, PwC Brazil engaged K&S to handle all aspects of the district court proceedings and appeals. A multi-disciplinary team worked with the Big Four network auditor to manage complex, cross-border legal questions and novel class-certification issues; execute massive transnational discovery; and tell the auditor’s story in pre-trial briefing that ultimately won dismissal of the securities fraud claim in a game-changing 2016 ruling. Following extended pretrial sparring, the defense then favorably settled the remaining claim, denying any wrongdoing and agreeing to pay less than 2 percent of the overall Petrobras settlement.

GettyImages-183833726
4-year

multibillion-dollar securities litigation resolved

<2%

PwC Brazil final share of overall Petrobras settlement

Special-Matters-and-Government-Investigations
Special Matters and Government Investigations

Michael Pauzé,
Washington, D.C.

Dixie Johnson,
Washington, D.C.

Laura Bennett,
Washington, D.C.

Corporate-and-Securities-Litigation
Corporate and Securities Litigation/Professional Liability

Jim Capra,
New York

Ken Turnbull,
Washington, D.C.

Israel Dahan,
New York

Paul Straus,
New York

Ryan Gabay,
New York

Close

2018 Global Infrastructure Deal of the Year (Large) — Global M&A Network Awards

US$1.1B

acquisition

31

data centers
(18 US, 13 international)

>1,000

business customers

Data-Driven: Brookfield Enters Multibillion-Dollar Server Market

Targeting a Global Network

Brookfield Infrastructure Group and its institutional partners (Brookfield) looked to make a first investment in the burgeoning data storage and movement business by purchasing AT&T’s 31 internet data centers (IDCs) and colocation operations, forging a strategic alliance with the media giant. The IDCs, located in top markets in 12 countries, serve more than 1,000 technology, financial, industrial, media, retail and other entities that rent data center infrastructure on which to run their servers.

All Data Are Local

Brookfield chose K&S to lead the purchase and complex global integration of the acquired business. To establish a platform in the industry, Brookfield and a transatlantic K&S team of 115 lawyers formed Evoque Data Center Solutions and its global subsidiaries, with K&S advising on corporate, contract, financing, real estate, tax, employee benefits, antitrust, IP and other matters. U.S. and UK teams also worked with local AT&T counsel on five continents to execute multiple asset carve-out transactions, adding 13 non-U.S. centers to the new entity. Numerous global agreements were negotiated to retain AT&T as a major customer upon deal close. Reaching favorable terms, Brookfield negotiated a debt commitment letter with Barclays, BNP Paribas and Deutsche Bank that included a $550 million senior secured first-lien term loan facility and a $50 million senior secured first-lien revolving credit facility.

In the Driver’s Seat

Investing $1.1 billion, Brookfield signed an agreement in mid-2018 to purchase AT&T’s colocation data center operations and assets. Under its terms, AT&T customer contracts, colocation operation employees, fixed assets and leased and owned facilities transferred to Evoque, which will continue to offer colocation services from 18 U.S. and 13 global IDCs. Evoque also joins the seller’s global colocation ecosystem, gaining access to the broader AT&T customer base. At the helm of a worldwide, multibillion-dollar data platform, Evoque is positioned to gain market leadership.

2018 Global Infrastructure Deal of the Year (Large) — Global M&A Network Awards

US$1.1B

acquisition

31

data centers
(18 US, 13 international)

>1,000

business customers

Mergers-and-Acquisitions
Private Equity/M&A

Ray Baltz, Jr.,
Atlanta

Jeff Malonson,
Houston

Spencer Stockdale,
Atlanta

John Anderson,
Atlanta

Krishna Omkar,
London

Financial-Services
Financial Services

Carolyn Alford,
Atlanta

Cecilia Hong,
New York

Real-Estate
Real Estate

Mark Thigpen,
Charlotte

Commercial-Contracts
Commercial Contracts

Bill Roche,
Atlanta

Angela Kang,
Atlanta

Tax
Tax

Jon Talansky,
New York

Antitrust
Antitrust

Jeff Spigel,
Washington, D.C.

Employee-Benefits
Employee Benefits and Executive Compensation

Ken Raskin,
New York

Labor-and-Employment
Labor and Employment

Jules Quinn,
London

Close
Ohio

1 of 5 U.S. states with the highest opioid-related deaths

Cancer is second-leading cause of death in Ohio

1 Ohioan dies every other day waiting for an organ transplant

>600

points of care as a result of Healthy State Alliance

>50,000

team members as a result of Healthy State Alliance

Structuring a Powerful Midwest Healthcare Collaboration

Building Crisis-Level Capacity

To better address critical public health challenges in Ohio, a major academic medical center and the largest community health system in the state sought to create a master affiliation to collaborate on a variety of strategic objectives. Focused initially on impacting outcomes in the opioid epidemic, oncology and organ transplants in the Midwest, where such needs are critical, the two parties will develop a robust academic affiliation. The parties are working towards implementation of coordinated programs, joint ventures and opportunities in medical education, research and innovation, among others.

Integrating Disparate Structures

Facilitating a powerhouse collaboration between Ohio State University Wexner Medical Center (Ohio State) and Mercy Health, a Catholic health ministry (part of Bon Secours Mercy Health), required resolving complex public entity, Catholic, academic, antitrust and healthcare regulatory issues. In coordination with Ohio State and Mercy, a K&S transaction team jointly represented the parties and worked with the firm’s broader antitrust and healthcare regulatory platforms to advise and guide the massive health systems toward an innovative and transformative alliance.

Mobilizing an Innovative Care Model

The resulting Healthy State Alliance is unique in scope and hopes to provide greatly increased access to healthcare professionals and points of care throughout the state. The Alliance, through its many working groups and teams on the ground at Mercy Health and Ohio State, continues to grow and define an affiliation that is well-positioned to effect change.

Ohio

1 of 5 U.S. states with the highest opioid-related deaths

Cancer is second-leading cause of death in Ohio

1 Ohioan dies every other day waiting for an organ transplant

>600

points of care as a result of Healthy State Alliance

>50,000

team members as a result of Healthy State Alliance

Healthcare
Healthcare

Torrey McClary,
Los Angeles

Travis Jackson,
Los Angeles

Gary Eiland,
Houston

Ranee Adipat,
Washington, D.C.

Kristin Roshelli,
Houston

Antitrust
Antitrust

John Carroll,
Washington, D.C.

Intellectual-Property-Patent-Trademark
Intellectual Property, Patent, Trademark and Copyright Litigation

Richard Groos,
Austin

Sheri Hunter,
Austin

Close

Case continues as six parties file notices of appeal in early March 2019

Panel unanimously rejects publishers’ proposed “per-play” rate structure

Stream On: A Rate-Setting Win for Google and Digital Music

Litigating to Manage Long-Term Royalties

As a leading streaming music service provider, Google Inc. looked to block the music publishing industry from radically altering the structure for paying what are known as “mechanical” royalties involved in the distribution of digital downloads and on-demand streams of sound recordings.

The case was litigated before the U.S. Copyright Royalty Board. A K&S team of music industry IP veterans represented Google as part of an industrywide resolution of rates and terms to govern the period January 1, 2018 – December 31, 2022. The music publishing industry sought to change the historic rate structure built around a percentage of revenues generated by the digital music services to a per-play rate structure, which would dramatically alter the landscape and likely result in the elimination of most free-to-user service offerings. Google and the other digital music services sought to largely replicate the previous rate structure. Over the course of a trial that spanned almost four months in 2017, 37 witnesses provided testimony and more than 1,100 exhibits were admitted.

A Favorable Result–As Appeal Proceedings Continue

In two decisions released in January 2018, the Copyright Royalty Judges unanimously rejected the music publishing industry’s proposed rate-setting structure and agreed with Google and the other services that the new rate structure should largely conform to the preexisting structure. The majority and dissenting opinions disagreed regarding tweaks in the prior rate structure, which led to a host of motions for clarification and a Final Determination published in February 2019. Almost all parties in the proceedings filed notices of appeal in March 2019 addressing differing aspects of the majority decision. Future developments in this case thus could have significant implications for the digital streaming industry.

Case continues as six parties file notices of appeal in early March 2019

Panel unanimously rejects publishers’ proposed “per-play” rate structure

Intellectual-Property-Patent-Trademark
Intellectual Property, Patent, Trademark and Copyright Litigation

Kenneth Steinthal,
San Francisco

Blake Cunningham,
Austin

David Mattern,
Washington, D.C.

Close
US$1.23B

deal

100%

equity interest in operating subsidiaries of two Dominion plants

4

months from announced sale to closed deal

Private Equity Firm Scores Prized Power Assets

Targeting a Gem

Seeking to add to its next-generation energy assets, Starwood Energy Group Global, Inc., a leading private equity firm focused on energy infrastructure, sought to acquire two combined-cycle gas turbine plants from Dominion Energy: the 1,240 MW Fairless Power Station (Fairless), located in Pennsylvania, and the 468 MW Manchester Street Power Station (Manchester), located in Rhode Island. Both plants are located in regional transmission organizations that provide a forward capacity market for electric generation assets.

Fine-Tuning the Bid

To structure the winning bid, K&S coordinated with Starwood to outdo competitive offers through a carefully calibrated representations and covenant package and by committing to a streamlined and efficient negotiation process to meet Dominion’s divestiture goals. To deliver on these commitments, a multi-office K&S team integrated private equity and M&A capabilities with those of germane additional practice groups (shown at right).

Acquiring ROI

In a private equity coup, Starwood announced in September 2018 that it had an agreement to acquire 100 percent of the equity interests in the operating subsidiaries for the two Dominion plants for approximately $1.23 billion. The deal was consummated in December. Both plants are located close to customer demand, in line with Starwood’s investment model, and in regional transmission organizations that provide a forward capacity market for electric-generation assets.

US$1.23B

deal

100%

equity interest in operating subsidiaries of two Dominion plants

4

months from announced sale to closed deal

Mergers-and-Acquisitions
Mergers and Acquisitions/Private Equity

Jonathan Melmed,
New York

Enrico Granata,
New York

Keiko Hayakawa,
New York

Egbert de Groot,
New York

Leveraged-Finance
Leveraged Finance

Carolyn Alford,
Atlanta

Cecilia Hong,
New York

Brandon Dalling,
New York

CR Park,
New York

Evan Palenschat,
Chicago

Employee-Benefits
Employee benefits and Executive Compensation

Ken Raskin,
New York

Lucretia Messiah,
New York

Environmental-Health-and-Safety
Environmental, Health and Safety

Les Oakes,
Atlanta

Tax
Tax

Ted Markson,
New York

Real-Estate
Real Estate

Chris McCoy,
Charlotte

Natalie Gordon,
Charlotte

Energy-Regulatory
Energy Regulatory

Zori Ferkin,
Washington, D.C.

Bill Rice,
Washington, D.C.

Antitrust
Antitrust

Jeff Spigel,
Washington, D.C.

Albert Kim,
Washington, D.C.

Close
US$2.2B

Second-largest known ICSID award under an investment treaty

Restoring Billions in Landmark Arbitration Award

Seeking Reparations for Losses

Madrid-based Unión Fenosa Gas (UFG) sought compensation from the government of Egypt after gas supply to its US$1.4 billion liquefied natural gas (LNG) plant was for years reduced and then, as of 2012, entirely diverted to other customers, during a period of domestic fuel shortages. An agreement between the state-owned Egyptian Natural Gas Holding Company (EGAS) and UFG, which the government had endorsed, guaranteed supply to the UFG export facilities in the port of Damietta for 25 years.

Showing Arbitrary Action

In 2014, under the Spain-Egypt Bilateral Investment Treaty, UFG brought its case before the International Centre for Settlement of Investment Disputes (ICSID), an institution within the World Bank that governs treaty disputes between foreign investors and states. Working with an international team of K&S arbitration and energy lawyers, UFG argued that Egypt breached its treaty promise to protect UFG’s investment by pursuing policies that predictably reduced gas availability and then directing that UFG’s gas supply be curtailed. UFG refuted Egypt’s claims that global and national crises justified Egypt’s actions. UFG also proved that Egypt’s late allegations that corruption helped secure the underlying agreement lacked any merit.

Resetting a Key Partnership

Ordering US$2.2 billion to be paid to Unión Fenosa Gas, including interest and legal costs, an ICSID tribunal ruled that Egypt had in fact violated treaty terms by interfering with delivery of gas to UFG’s Damietta plant. The tribunal rejected Egypt’s state-of-necessity defense and allegations of corruption. In addition to being the second-largest known ICSID award granted under a treaty, the ruling could offer new opportunities for cooperation. Naturgy, a UFG parent company, views the outcome as a chance to reestablish the value of its investment, resume operations at the plant, and restore its relationship with a market to which it has long been committed.

US$2.2B

Second-largest known ICSID award under an investment treaty

International-Arbitration-Litigation
International Arbitration and Litigation

Doak Bishop,
Houston

James Castello,
Paris

Ed Kehoe,
New York

Isabel Fernandez de la Cuesta,
New York

David Weiss,
Houston

Sara Burns,
Atlanta

Rami Chahine,
Paris

Aloysius Llamzon,
Washington, D.C.

Sara McBrearty,
Houston

Anisha Sud,
Singapore

Close
20

pharmaceutical manufacturers investigated by DOJ

2017

Johnson & Johnson acquires Actelion

2018

matter closed with no admission of wrongdoing

Closing Pharma DOJ Probe With No Finding of Wrongdoing

Complying with Regulatory Oversight

As one of 20 manufacturers involved in a Department of Justice (DOJ) probe, Actelion Pharmaceuticals sought to address allegations regarding donations made to a charitable patient assistance foundation in 2014 and 2015, prior to its 2017 acquisition by Johnson & Johnson. Drug companies regularly and legally donate to charitable foundations that assist patients in paying for pharmaceutical products; federal anti-kickback laws limit U.S. drug makers in directly controlling assistance provided to Medicare and Medicaid patients.

Identifying Patient Assistance Issues

As the probe began, K&S lawyers experienced in government investigations and pharmaceutical compliance matters formed and led a joint defense group of the subpoenaed manufacturers. In defending Actelion, the K&S team has addressed complicated and novel issues regarding the application of the federal Anti-Kickback Statute and non-binding agency guidance in the area of charitable giving.

Serving Patient Needs

Admitting no wrongdoing and closing the matter with a civil-only resolution, in December 2018 Actelion announced it had settled with the DOJ for $360 million. Other leading manufacturers have also settled with the government. Johnson & Johnson, which was not implicated in the investigation, publicly announced following the resolution that “[w]e are committed to full compliance with all laws and regulations in our work to help patients get the medicines they need.”

20

pharmaceutical manufacturers investigated by DOJ

2017

Johnson & Johnson acquires Actelion

2018

matter closed with no admission of wrongdoing

Special-Matters-and-Government-Investigations
Special Matters and Government Investigations

Wick Sollers,
Washington, D.C.

Mark Jensen,
Washington, D.C.

Brandt Leibe,
Houston/Washington, D.C.

Dan Sale,
Washington, D.C.

Luke Fields,
Washington, D.C.

Matt Weybrecht,
Washington, D.C.

Close
US$1.5B

global rosacea treatment market in 2017*

5

patents infringed

Patents protected through December 2025

Novel Strategy Yields Pharma Patent Infringement Trial Win

Protecting a Billion-Dollar Market

Dermatological treatment giant Galderma S.A. sought to stop Amneal Pharmaceuticals from marketing a generic form of the Swiss pharmaceutical’s flagship product, Oracea,® a successful treatment for rosacea. In early 2016, Amneal had received tentative approval to market its generic in the United States before 2025, when Oracea patents are set to expire.

Establishing Equivalence

Claiming Amneal’s generic infringed its patents, Galderma filed suit in March 2016. Galderma and K&S employed an innovative strategy, arguing that an infringer’s proposed attempt at a design-around product nonetheless infringed under the equitable Doctrine of Equivalents (DOE). The K&S team also countered numerous invalidity claims by Amneal.

Erecting New IP Guardrails

Though proving infringement under DOE is a “unicorn” in patent litigation, a federal judge ratified Galderma’s equivalents argument, ruling that Amneal’s generic could not be approved by the FDA until at least December 2025. The court determined that no fewer than five patents had been infringed by Amneal’s product, calling it “insubstantially different” from the patents covering Oracea’s formulation. The court’s decision protects a franchise that has generated more than $3 billion since its launch and approximately $300 million in annual revenue in the U.S.

* https://www.grandviewresearch.com/industry-analysis/rosacea-treatment-market

US$1.5B

global rosacea treatment market in 2017*

5

patents infringed

Patents protected through December 2025

Intellectual-Property-Patent-Trademark
Intellectual Property, Patent, Trademark and Copyright Litigation

Gerald Flattmann,
New York

Evan Diamond,
New York

Vanessa Yen,
New York

Close