Back in the early Seventies, some enterprising young legal services lawyers filed a creative lawsuit that challenged the procedures for evicting public housing tenants in Chicago. Following the U.S. Supreme Court's landmark opinion in Goldberg v. Kelly, they argued that public housing residents are entitled to fair hearings before the institution of eviction cases. The upshot of the suit was the creation of tenant boards, which had to approve every eviction (for grounds other than nonpayment of rent) before the city's housing agency could even file a forcible detainer action in court.
But the victory proved ephemeral: The residents who volunteered to serve on the boards had little tolerance for their neighbors who were accused of lease violations such as drug use or violence, or even less harmful infractions like making noise or keeping pets. By the time I joined Chicago's legal assistance foundation in 1973, its lawyers had basically given up on the tenant boards. My supervisor told me not to represent clients at pre-eviction hearings, explaining that no one had ever won one. (Given the staggering caseload, it made sense to concentrate on cases we might actually win.)
I suppose that the obduracy of the tenant boards might have given me some interesting insights into the jury system-perhaps ordinary citizens are not really more lenient than "the establishment"-but I was young and idealistic, so I ignored it and continued to put my faith in the judgment of "the people."
And that brings us to the subject of real jury trials in criminal cases. Just about everyone thinks that jury trials provide a relative advantage to defendants, and some very high-profile acquittals in controversial cases seem to underscore the point. (Think of O.J. Simpson, Richard Scrushy, the Amadou Diallo case, and the second Andrea Yates trial.) Lawyers and defendants alike appear to have internalized the lesson, overwhelmingly preferring juries to bench trials. Whether they expect common folk to be more incisive or more gullible than judges, more than three-quarters of defendants in federal cases opt for juries when they go to trial.
Surprisingly, however, it may turn out that the conventional wisdom about jury trials is wrong, just as Chicago's legal assistance lawyers were wrong about tenant boards. In a recent study published in the Washington University Law Quarterly in 2005, University of Illinois law professor Andrew Leipold discovered that federal court defendants fare far worse before juries than in bench trials. Between 1989 and 2002, Leipold found, there was an 84 percent conviction rate in federal jury trials, but only a 55 percent conviction rate in bench trials. In fact, the "conviction gap" actually increased over the period, with jury conviction rates holding steady and bench trial convictions falling dramatically. What's more, the disparity held true-with juries convicting far more reliably than judges-in every part of the country and in every type of case.
Professor Leipold's statistics are impressive and convincing, and his article, "Why Are Federal Judges So Acquittal Prone?," is far more readable than the typical venture into empirical legal studies. Most importantly, he asks the right questions about his findings: Why is there such a great difference in outcomes, with judges responsible for so many more acquittals than juries? And perhaps even more intriguingly, why do defendants and their lawyers consistently choose the fact finder that is more likely to convict?
Exploring the first question, Leipold notes that federal judges have not always been so acquittal-prone. In fact, not very long ago judges convicted at higher rates than juries, with the current imbalance really taking hold only in 1989. And that timing, Leipold observes, coincides rather neatly with the effective date of the mandatory federal sentencing guidelines in November 1987, which drastically limited judges' traditional discretion on sentencing. Many federal judges considered the guidelines draconian or worse, requiring them to impose overly severe sentences in case after case. Thus, Leipold conjectures that the increased bench trial acquittal rate may reflect judges' reactions to the guidelines. "Put more bluntly," he says, "judges may acquit more often because they found it to be the only way to avoid imposing an unjust sentence they know would follow a conviction."
I doubt that any judge would admit to intentionally acquitting a guilty defendant. That would amount to disrespect for the law. Still, the reality of extra-harsh punishment might well serve to focus judges' attention on the burden of proof. It is a well-recognized phenomenon that people tend to take weighty decisions more seriously, so it's reasonable to think judges might do the same, deliberately or not. And who knows? Maybe preguideline judges were conviction-happy, deferring to prosecutors and throwing doubt to the winds.
In any event, we may soon have a preliminary answer to this question, since the Supreme Court partially invalidated the guidelines in United States v. Booker (2005). Now that judges are freed from the most confining strictures of mandatory sentencing, it is possible that post-Booker bench trials will begin to return more convictions.
But whether or not the current trend continues, we still have to wonder why defense lawyers have spent 15 years demanding jury trials when it appears that judges would have been nearly three times as likely to acquit their clients. There are two possible explanations. Either defense lawyers are really stupid, or they are very smart.
According to the stupid-lawyer theory, defense attorneys have simply failed to notice that juries have become much tougher than judges. No matter that juries have regularly sent innocent defendants to prison-in Illinois alone, at least 18 innocent men were sentenced to death following jury convictions-lawyers have remained faithful to an ideal of jury-as-protector that has long been eroded by the public celebration of law and order. Alternatively, it might be the (guiltiest) defendants themselves who are stupid, refusing bench trials because they have deluded themselves into believing that they can confuse or bamboozle a jury of their peers.
On the basis of my experience, however, I tend to favor the smart-lawyer explanation. The disparity between bench and jury convictions may well reflect a successful strategy on the part of defense counsel, who astutely select the best fact finder for each case. Under this hypothesis, defense lawyers take their best cases to bench trials because they believe that judges will be more adept at recognizing reasonable doubt. In weak cases, however, where the prosecution evidence is strong-to-overwhelming, they prefer jury trials in the hope that lightning might strike. A public defender once explained it to me succinctly. "Our job," he said, "is to win bench trials and lose jury trials." That was many years before Leipold's conclusive study, but he accurately predicted the result.
There is another possible explanation for defense lawyers' seemingly counterproductive preference: In a bench trial, you either win or lose. In a jury trial, you can win, draw, or get a do-over.
The second outcome-a hung jury, or a tie-is preferable to a conviction, but does not show up in Leipold's statistics. Remember, it only takes one juror with a reasonable doubt to hang a jury. And following a mistrial, it is not unusual for the prosecution to tender a better plea bargain, perhaps by dismissing the more serious counts, in which case there would be no retrial. We do not know how often that happens, but the potential for a hung jury (and the attendant posttrial benefits) could certainly influence the defense lawyers' choices.
And even when a jury convicts, there is always the possibility that the judge will give the defendant a do-over. Federal district court judge Jack Weinstein recently did just that in the closely watched "Mafia cops" case in Brooklyn, New York. After the jury found two New York City police officers guilty of murder and conspiracy for their involvement in eight mob assassinations, Judge Weinstein threw out the convictions on statute of limitations grounds. Referring to the defendants as "heinous criminals" who had been "found guilty on overwhelming evidence of the most despicable crimes of violence," Judge Weinstein nonetheless released them because he concluded that the "Constitution [and] statutes" required it. It would have been difficult for a jury to acquit on such a "technicality," said one of the defense lawyers. Indeed.
Finally, let's consider the matter of, well, respect for the jury process. While no sane defendant would prefer conviction to acquittal, I suspect that many find it easier to accept convictions following jury trials. "If I'm going to do time," I have heard it said, "I want a jury to tell me that I am guilty." Even criminals, it turns out, may have faith in the system.
Criminal Law
Friday, September 15, 2006
Thursday, September 14, 2006
To be counted among the nation's elite, law firms need more than sheer size or money
Balance May be the X-factor that separates the top tier of the legal profession from the rest of the pack. You can't be on The American Lawyer's A-List-our annual ranking of the best of the best among the nation's top law firms-without it.
We compile the list by measuring performance of Am Law 200 firms in four key areas: Financial success is one component, commitment to pro bono is another. A firm must attend to the morale and training of its associates and do something more than pay lip service to the idea of a diverse workplace. Our goal here is fairly straightforward. We aim to determine, as objectively as possible, the firms that have been able to build successful practices without abandoning the profession's core values.
As our scores show, the best law firms find a way to balance it all. They marry good business with good works, treat associates decently, and work hard to promote diversity. A-List scores are based on data collected from our annual Am Law 200, pro bono, associate satisfaction surveys, and the Diversity Scorecard compiled by our sibling publication, Minority Law Journal. Some core values are more equal than others. We double the value of revenue per lawyer-our proxy for the ability to attract the best work from the best clients-and pro bono scores. (For a more detailed description of the methodology we use, click here.)
It is, by definition, difficult to make the cut: The A-List is composed of just 20 firms, or 10 percent of The Am Law 200. And as we noted last year, the bar for making the grade continues to rise. This year, the cutoff for the list rose another 19 points-that's on top of a 19-point jump in 2004.
Mass is not a barometer of A-List success. It's not how big you are that matters, it's what you do. Consider: Eleven U.S.-based firms have more than 1,000 lawyers, but just three of them made The A-List: Latham & Watkins; Skadden, Arps, Slate, Meagher & Flom; and Weil, Gotshal & Manges. The average size of an A-List firm this year is 690 lawyers. By contrast, the average size of a firm in the top 20 of The Am Law 100 was 1,211.
Repeat players dominate the list. Thirteen have made it each of the three years: Arnold & Porter; Cleary Gottlieb Steen & Hamilton; Cravath, Swaine & Moore; Covington & Burling; Davis Polk & Wardwell; Debevoise & Plimpton; Heller Ehrman; Latham; Patterson Belknap Webb & Tyler; Paul, Weiss, Rifkind, Wharton & Garrison; Simpson Thacher & Bartlett; Skadden; and Wilmer Cutler Pickering Hale and Dorr.
Debevoise has finished atop the chart for two consecutive years, and we examine how they did it. Also we find lessons from two firms that make their A-List debut: Shearman & Sterling and Cooley Godward; and two that have returned to the fold: Fried, Frank, Harris, Shriver & Jacobson and Weil, Gotshal. Being an A-List firm takes balance and will.
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We compile the list by measuring performance of Am Law 200 firms in four key areas: Financial success is one component, commitment to pro bono is another. A firm must attend to the morale and training of its associates and do something more than pay lip service to the idea of a diverse workplace. Our goal here is fairly straightforward. We aim to determine, as objectively as possible, the firms that have been able to build successful practices without abandoning the profession's core values.
As our scores show, the best law firms find a way to balance it all. They marry good business with good works, treat associates decently, and work hard to promote diversity. A-List scores are based on data collected from our annual Am Law 200, pro bono, associate satisfaction surveys, and the Diversity Scorecard compiled by our sibling publication, Minority Law Journal. Some core values are more equal than others. We double the value of revenue per lawyer-our proxy for the ability to attract the best work from the best clients-and pro bono scores. (For a more detailed description of the methodology we use, click here.)
It is, by definition, difficult to make the cut: The A-List is composed of just 20 firms, or 10 percent of The Am Law 200. And as we noted last year, the bar for making the grade continues to rise. This year, the cutoff for the list rose another 19 points-that's on top of a 19-point jump in 2004.
Mass is not a barometer of A-List success. It's not how big you are that matters, it's what you do. Consider: Eleven U.S.-based firms have more than 1,000 lawyers, but just three of them made The A-List: Latham & Watkins; Skadden, Arps, Slate, Meagher & Flom; and Weil, Gotshal & Manges. The average size of an A-List firm this year is 690 lawyers. By contrast, the average size of a firm in the top 20 of The Am Law 100 was 1,211.
Repeat players dominate the list. Thirteen have made it each of the three years: Arnold & Porter; Cleary Gottlieb Steen & Hamilton; Cravath, Swaine & Moore; Covington & Burling; Davis Polk & Wardwell; Debevoise & Plimpton; Heller Ehrman; Latham; Patterson Belknap Webb & Tyler; Paul, Weiss, Rifkind, Wharton & Garrison; Simpson Thacher & Bartlett; Skadden; and Wilmer Cutler Pickering Hale and Dorr.
Debevoise has finished atop the chart for two consecutive years, and we examine how they did it. Also we find lessons from two firms that make their A-List debut: Shearman & Sterling and Cooley Godward; and two that have returned to the fold: Fried, Frank, Harris, Shriver & Jacobson and Weil, Gotshal. Being an A-List firm takes balance and will.
Follow the Lawyer and Attorney section of http://www.netbestfor.com
Conflict Claim Sours Big Firm's Work With Health Giant
Accusations of bad faith, breach of loyalty and attorney activity "bordering on extortion" are flying in Georgia's Fulton County Superior Court, where medical conglomerate McKesson Corp. wants to have the Duane Morris firm disqualified from representing two Georgians against a McKesson subsidiary.
At issue is whether Duane Morris' representation of the Georgians against McKesson Information Solutions, while serving as local counsel for two other McKesson subsidiaries in Harrisburg, Pa, is a conflict of interest.
Documents in McKesson's case against the firm show that Duane Morris lawyers are relying on an engagement letter McKesson officials in the Pennsylvania case signed that waived conflicts that are not "subantially related" to that matter.
The case highlights the ethical risks when a megafirm like Duane Morris, which has 600-plus lawyers in 18 offices around the world, works for a huge company such as McKesson, a supplier of medical and health-care technology, training and pharmaceuticals that claims more than $80 billion in annual revenue.
The problem started in April, when McKesson Medication Management and McKesson Automation contracted with Duane Morris' office in Harrisburg, Pa., to serve as local outside counsel in a case being heard in U.S. Bankruptcy Court in which the two companies are among several creditors.
In July, Duane Morris' Atlanta office was hired by Nan and Alex Smith to help in their claims against McKesson Information Systems, the name for the health-care business they sold in 1994 to a company that has since been acquired by McKesson.
The Smiths took McKesson Information to arbitration to settle their claims that McKesson breached a noncompete agreement and committed fraud, based on allegations that the company shipped empty boxes to inflate sales figures several years earlier.
The trouble is spelled out in communication, included in the Fulton case file, between the Atlanta firm of Morris Manning & Martin, which was lead counsel for the McKesson subsidiaries in the Pennsylvania bankruptcy case, and Duane Morris' Atlanta office.
On Aug. 8, Duane Morris' Sean R. Smith sent a letter to Lawrence H. Kunin of Morris Manning. (There was no response by press time to an inquiry as to whether Sean R. Smith is related to Alex and Nan Smith.)
Smith argued that Duane Morris' engagement letter with McKesson clients in Pennsylvania expressly limited their attorney-client relationship to serving as local counsel to the two companies for the bankruptcy case.
"You recently stated that 'McKesson' believes that representation of one McKesson entity, under any circumstances, would automatically give rise to a conflict by representation against another McKesson company," wrote Smith. "We were very surprised to learn this, because the Engagement Letter was revised at the request of [McKesson], and the terms that specify that Duane Morris represents only McKesson Medical and McKesson Automation and not any affiliates and the waiver of conflicts were not identified as objectionable."
The agreement letter, signed by Duane Morris' Harrisburg partner Brian Bisignani and included in the Fulton case file, contains this statement: "Given the scope of our business and the scope of our client representations ... it is possible that some of our clients or future clients will have matters adverse to McKesson. ... We understand that McKesson has no objection to our representation of parties with interests adverse to McKesson and waive any actual or potential conflict of interest as long as those other engagements are not substantially related to our services to McKesson."
The next paragraph, however, contains a caveat that the waiver "shall not apply in any instance where ... we have obtained proprietary or confidential information."
Duane Morris' Smith wrote that that section "contemplates situations exactly like the current one," and conforms to the American Bar Association's "preferred method for resolving potential conflicts in the corporate affiliate context before they arise."
Should McKesson insist upon its position, Smith concluded, Duane Morris would bow out of the bankruptcy proceedings entirely.
Three days later, Kunin and Morris Manning partner Joseph R. Manning filed McKesson's Fulton case against Duane Morris.
The complaint terms the firm's threat of withdrawing as "bordering on extortion."
Pointing to the allegations of malfeasance the Smiths allege, Manning and Kunin wrote, "It is hard to imagine a more blatant breach of loyalty than to accuse your current client of fraud and then withdraw from the initial representation as pure punishment."
McKesson Information, the subject of the arbitration, and McKesson Automated are both part of a larger segment of the corporation, which has a single president and shares a legal department headquartered in Alpharetta, Ga., the complaint adds.
The complaint referred to a consultation with Paula J. Frederick of the State Bar of Georgia's Office of General Counsel. She cited Rule 1.7 of the Georgia Rules of Professional Conduct and Comment and said, according to the complaint, "Absent specificity, future waivers of conflicts of interest are invalid because a waiver must be 'knowing' and a party cannot know in advance exactly what conflicts are involved."
Frederick would not elaborate on her comments.
On Aug. 21, Duane Morris' Smith and partner John C. Herman and associate Antony L. Sanacory filed a motion in opposition to the emergency injunction and disqualification, describing the suit as an attempt "to create a conflict where none exists." The filing decried their firm's portrayal as "extortionists" as "an entirely unfounded and spurious claim," and said that Duane Morris' Pennsylvania attorneys have had limited contact with any employee at any McKesson-owned entity and "certainly received no confidential information related to [McKesson Information] at all."
Kunin said he could not comment.
Smith referred inquiries to Duane Morris' general counsel in Chicago, Michael J. Silverman, who similarly declined comment. A call to McKesson's local in-house counsel, Ami R. Patel, was unsuccessful.
Georgia State University legal ethics professor Clark D. Cunningham reviewed the filings and was troubled by Duane Morris' actions.
"A lawyer cannot commit unethical conduct because a client gives him permission," said Cunningham, calling the engagement letter an "unprofessional and unconscionable" effort "that's all about the lawyers' desire to make money and not about their clients' interests."
Cunningham said that Georgia Bar rules and case law "specifically require consultation with the client; that he receives, in writing, reasonable, adequate, detailed notice of the potential conflict ... and, once explained, he can say, 'No, I don't want to take that risk.'"
Cunningham said a provision of the engagement letter that waives notice of any conflict unrelated to bankruptcy, even though it may be adverse to McKesson's interest, is not only a violation of Georgia rules but also "an unconscionable breach of legal ethics."
"They're saying, 'We can pick and choose our clients,' and shop around for the most money, even if it's adverse to existing clients.'"
Duane Morris' Smith could not be reached to comment on Cunningham's assessment.
Attorney Magazine
At issue is whether Duane Morris' representation of the Georgians against McKesson Information Solutions, while serving as local counsel for two other McKesson subsidiaries in Harrisburg, Pa, is a conflict of interest.
Documents in McKesson's case against the firm show that Duane Morris lawyers are relying on an engagement letter McKesson officials in the Pennsylvania case signed that waived conflicts that are not "subantially related" to that matter.
The case highlights the ethical risks when a megafirm like Duane Morris, which has 600-plus lawyers in 18 offices around the world, works for a huge company such as McKesson, a supplier of medical and health-care technology, training and pharmaceuticals that claims more than $80 billion in annual revenue.
The problem started in April, when McKesson Medication Management and McKesson Automation contracted with Duane Morris' office in Harrisburg, Pa., to serve as local outside counsel in a case being heard in U.S. Bankruptcy Court in which the two companies are among several creditors.
In July, Duane Morris' Atlanta office was hired by Nan and Alex Smith to help in their claims against McKesson Information Systems, the name for the health-care business they sold in 1994 to a company that has since been acquired by McKesson.
The Smiths took McKesson Information to arbitration to settle their claims that McKesson breached a noncompete agreement and committed fraud, based on allegations that the company shipped empty boxes to inflate sales figures several years earlier.
The trouble is spelled out in communication, included in the Fulton case file, between the Atlanta firm of Morris Manning & Martin, which was lead counsel for the McKesson subsidiaries in the Pennsylvania bankruptcy case, and Duane Morris' Atlanta office.
On Aug. 8, Duane Morris' Sean R. Smith sent a letter to Lawrence H. Kunin of Morris Manning. (There was no response by press time to an inquiry as to whether Sean R. Smith is related to Alex and Nan Smith.)
Smith argued that Duane Morris' engagement letter with McKesson clients in Pennsylvania expressly limited their attorney-client relationship to serving as local counsel to the two companies for the bankruptcy case.
"You recently stated that 'McKesson' believes that representation of one McKesson entity, under any circumstances, would automatically give rise to a conflict by representation against another McKesson company," wrote Smith. "We were very surprised to learn this, because the Engagement Letter was revised at the request of [McKesson], and the terms that specify that Duane Morris represents only McKesson Medical and McKesson Automation and not any affiliates and the waiver of conflicts were not identified as objectionable."
The agreement letter, signed by Duane Morris' Harrisburg partner Brian Bisignani and included in the Fulton case file, contains this statement: "Given the scope of our business and the scope of our client representations ... it is possible that some of our clients or future clients will have matters adverse to McKesson. ... We understand that McKesson has no objection to our representation of parties with interests adverse to McKesson and waive any actual or potential conflict of interest as long as those other engagements are not substantially related to our services to McKesson."
The next paragraph, however, contains a caveat that the waiver "shall not apply in any instance where ... we have obtained proprietary or confidential information."
Duane Morris' Smith wrote that that section "contemplates situations exactly like the current one," and conforms to the American Bar Association's "preferred method for resolving potential conflicts in the corporate affiliate context before they arise."
Should McKesson insist upon its position, Smith concluded, Duane Morris would bow out of the bankruptcy proceedings entirely.
Three days later, Kunin and Morris Manning partner Joseph R. Manning filed McKesson's Fulton case against Duane Morris.
The complaint terms the firm's threat of withdrawing as "bordering on extortion."
Pointing to the allegations of malfeasance the Smiths allege, Manning and Kunin wrote, "It is hard to imagine a more blatant breach of loyalty than to accuse your current client of fraud and then withdraw from the initial representation as pure punishment."
McKesson Information, the subject of the arbitration, and McKesson Automated are both part of a larger segment of the corporation, which has a single president and shares a legal department headquartered in Alpharetta, Ga., the complaint adds.
The complaint referred to a consultation with Paula J. Frederick of the State Bar of Georgia's Office of General Counsel. She cited Rule 1.7 of the Georgia Rules of Professional Conduct and Comment and said, according to the complaint, "Absent specificity, future waivers of conflicts of interest are invalid because a waiver must be 'knowing' and a party cannot know in advance exactly what conflicts are involved."
Frederick would not elaborate on her comments.
On Aug. 21, Duane Morris' Smith and partner John C. Herman and associate Antony L. Sanacory filed a motion in opposition to the emergency injunction and disqualification, describing the suit as an attempt "to create a conflict where none exists." The filing decried their firm's portrayal as "extortionists" as "an entirely unfounded and spurious claim," and said that Duane Morris' Pennsylvania attorneys have had limited contact with any employee at any McKesson-owned entity and "certainly received no confidential information related to [McKesson Information] at all."
Kunin said he could not comment.
Smith referred inquiries to Duane Morris' general counsel in Chicago, Michael J. Silverman, who similarly declined comment. A call to McKesson's local in-house counsel, Ami R. Patel, was unsuccessful.
Georgia State University legal ethics professor Clark D. Cunningham reviewed the filings and was troubled by Duane Morris' actions.
"A lawyer cannot commit unethical conduct because a client gives him permission," said Cunningham, calling the engagement letter an "unprofessional and unconscionable" effort "that's all about the lawyers' desire to make money and not about their clients' interests."
Cunningham said that Georgia Bar rules and case law "specifically require consultation with the client; that he receives, in writing, reasonable, adequate, detailed notice of the potential conflict ... and, once explained, he can say, 'No, I don't want to take that risk.'"
Cunningham said a provision of the engagement letter that waives notice of any conflict unrelated to bankruptcy, even though it may be adverse to McKesson's interest, is not only a violation of Georgia rules but also "an unconscionable breach of legal ethics."
"They're saying, 'We can pick and choose our clients,' and shop around for the most money, even if it's adverse to existing clients.'"
Duane Morris' Smith could not be reached to comment on Cunningham's assessment.
Attorney Magazine
Wednesday, September 13, 2006
Judge Rules Attorney's Faxes Are Prohibited Advertising
A Manhattan judge has ruled that a lawyer's faxed advisories about legal malpractice issues and cases are prohibited "unsolicited advertisements" because they indirectly highlight his availability to represent clients in such matters.
Until last year, Manhattan solo practitioner Andrew Lavoott Bluestone wrote an "Attorney Malpractice Report" that he sent unsolicited to several lawyers whose fax numbers were listed in the New York Lawyers' Diary and Manual.
Bluestone specializes in legal malpractice representations and has written articles on the subject for the New York Law Journal.
One of the fax recipients, Peter Marc Stern, sued Bluestone in Manhattan Supreme Court last year on the ground that the advisories violated the federal Telephone Consumer Protection Act, which bans sending unsolicited ads to fax machines.
Bluestone responded that the faxes were not intended to advertise his practice but to educate and inform the legal community about legal malpractice issues. He noted the faxes contained no language touting him or his work and only contained his name, address, Web site and contact information.
But Supreme Court Justice Jane S. Solomon said that was enough.
"Although the faxes do not directly offer Bluestone's services as a legal malpractice attorney, they indirectly advertise the commercial availability and quality of such services," she said in an Aug. 25 decision, Stern v. Bluestone, 111895/05.
"[B]y including the name of his law firm and contact information, Bluestone indirectly proposes a commercial transaction," the judge continued.
She granted summary judgment to Stern on the issue of liability under the act, with trial to proceed solely on the issue of damages. Stern could not be reached for comment.
In her decision, Solomon admonished Bluestone, noting that she had previously granted summary judgment against him in a similar 2004 suit brought by another lawyer who received faxes from Bluestone.
In Antollino v. LaSalle Services, 116629/03, the judge also rejected Bluestone's argument that his faxes were not sent for advertising purposes.
"Common sense however indicates that there is no other purpose for them," she wrote at the time.
She cited the earlier decision in ruling that Bluestone "willfully and knowingly" violated the act when he faxed Stern. The statute specifies minimum damages of $500 per fax, with treble damages available in cases of willful conduct. Stern claims he received 14 faxes from Bluestone between November 2003 and March 2005.
Bluestone said Tuesday he had altered his faxes considerably since Solomon's earlier decision. At that time, his advisories also had stated that he concentrated in attorney malpractice litigation and that inquiries were welcome. He removed that language, leaving only his name and contact information.
"She's now ruled that any communication by fax that has a lawyer's name or address on it is an advertisement," he said. "I don't see how that can be."
Bluestone said the judge had stretched statutory language in order to label his faxes "indirect" ads.
"Everything's in some sense an advertisement," he said. "If I put on a suit to go to work instead of shorts, isn't that an advertisement that I'm a serious professional?"
The main purpose of the faxes, Bluestone said, was to spark conversation throughout the legal community on issues of professional liability. When he first started sending the faxes, he said, it seemed a "cutting-edge way of disseminating information."
He stopped last year after discovering an even more cutting-edge method of spreading the word: He launched a legal malpractice blog last June.
Brian L. Bromberg represented Stern. Scott N. Greenfield represented Bluestone.
Attorney Magazine
Until last year, Manhattan solo practitioner Andrew Lavoott Bluestone wrote an "Attorney Malpractice Report" that he sent unsolicited to several lawyers whose fax numbers were listed in the New York Lawyers' Diary and Manual.
Bluestone specializes in legal malpractice representations and has written articles on the subject for the New York Law Journal.
One of the fax recipients, Peter Marc Stern, sued Bluestone in Manhattan Supreme Court last year on the ground that the advisories violated the federal Telephone Consumer Protection Act, which bans sending unsolicited ads to fax machines.
Bluestone responded that the faxes were not intended to advertise his practice but to educate and inform the legal community about legal malpractice issues. He noted the faxes contained no language touting him or his work and only contained his name, address, Web site and contact information.
But Supreme Court Justice Jane S. Solomon said that was enough.
"Although the faxes do not directly offer Bluestone's services as a legal malpractice attorney, they indirectly advertise the commercial availability and quality of such services," she said in an Aug. 25 decision, Stern v. Bluestone, 111895/05.
"[B]y including the name of his law firm and contact information, Bluestone indirectly proposes a commercial transaction," the judge continued.
She granted summary judgment to Stern on the issue of liability under the act, with trial to proceed solely on the issue of damages. Stern could not be reached for comment.
In her decision, Solomon admonished Bluestone, noting that she had previously granted summary judgment against him in a similar 2004 suit brought by another lawyer who received faxes from Bluestone.
In Antollino v. LaSalle Services, 116629/03, the judge also rejected Bluestone's argument that his faxes were not sent for advertising purposes.
"Common sense however indicates that there is no other purpose for them," she wrote at the time.
She cited the earlier decision in ruling that Bluestone "willfully and knowingly" violated the act when he faxed Stern. The statute specifies minimum damages of $500 per fax, with treble damages available in cases of willful conduct. Stern claims he received 14 faxes from Bluestone between November 2003 and March 2005.
Bluestone said Tuesday he had altered his faxes considerably since Solomon's earlier decision. At that time, his advisories also had stated that he concentrated in attorney malpractice litigation and that inquiries were welcome. He removed that language, leaving only his name and contact information.
"She's now ruled that any communication by fax that has a lawyer's name or address on it is an advertisement," he said. "I don't see how that can be."
Bluestone said the judge had stretched statutory language in order to label his faxes "indirect" ads.
"Everything's in some sense an advertisement," he said. "If I put on a suit to go to work instead of shorts, isn't that an advertisement that I'm a serious professional?"
The main purpose of the faxes, Bluestone said, was to spark conversation throughout the legal community on issues of professional liability. When he first started sending the faxes, he said, it seemed a "cutting-edge way of disseminating information."
He stopped last year after discovering an even more cutting-edge method of spreading the word: He launched a legal malpractice blog last June.
Brian L. Bromberg represented Stern. Scott N. Greenfield represented Bluestone.
Attorney Magazine
EEOC Seeks Key Testimony in Sidley Austin Age Discrimination Suit
The U.S. Equal Employment Opportunity Commission has moved to compel testimony about recent conversations between Sidley Austin partners and a former financial director who signed a 1999 letter stating that the firm had a mandatory retirement policy. more about discrimination
Sidley has denied having such a policy in the face of an EEOC suit claiming the Chicago-based law firm discriminated against 31 partners on the basis of age when it demoted them to counsel in 1999. The EEOC has claimed the financial director's letter "flatly contradicts" the firm's position.
The letter, dated Oct. 21, 1999, and addressed to the Social Security Administration in Chicago, states that "it is the general policy of Sidley & Austin not to permit a partner of the firm to continue as a partner commencing the first of the year following the year age 65 is reached." The letter is signed by William B. White, financial director.
According to the EEOC motion filed last Tuesday in Chicago federal court, White testified at a July 26 deposition that he believed the letter to be an accurate statement of the firm's retirement policy at the time he signed it. But he also testified that, after conversations earlier this year with Sidley partners William F. Conlon and Theodore N. Miller, he realized the letter did not accurately state firm policy.
The lawyer representing Sidley at the deposition, Michael Conway of Chicago's Grippo & Elden, objected to questions about these conversations on the grounds that they were privileged. The EEOC is seeking to compel White's testimony about them.
"This motion presents the classic example of a Defendant seeking to use the attorney-client and work-product privileges to improperly thwart the Plaintiff's discovery into areas that are potentially damaging for the Defendant," the EEOC claims.
The agency argues the conversations are not privileged because White, who is retired but still works at Sidley on a contract basis, was not seeking legal advice from either Miller, who is vice chairman of the firm's management committee and a member of its executive committee, or Conlon, an executive committee member who acts as the firm's general counsel.
"The fact that Conlon and Miller are lawyers does not render every conversation that they have about this case privileged," the EEOC says in its motion.
Conway did not return a call seeking comment but, according to a partial transcript of the July 26 deposition, he justified his objection on the grounds that the partners "were offering legal advice."
"Miller was acting as counsel to the firm in connection with this matter," said Conway. "Having a conversation with White about activities during the scope of his employment I think is privileged."
The EEOC had moved in June to have counsel separate from the firm appointed for White. The firm quickly agreed to the appointment, but the letter received some media attention at that time, including articles in the Law Journal and the Chicago Tribune.
Represented at his deposition by his new counsel, Michael Hannafan of Chicago's Hannafan & Hannafan, White testified that he first became aware the retirement policy stated in the letter was not correct after he read the June 6 article in the Tribune. That morning, he said, firm executive director Timothy Bergen showed him the newspaper and told him he was a "celebrity." Bergen then told him to call Miller.
White later testified that Conlon also had called him about the letter and its possible inaccuracy in February 2006.
In his deposition, White also said he did not actually write the 1999 letter, only signed it. He said the letter was drafted by now-retired partner Wilbur C. Delp, who asked the financial director to sign the letter "so he could put it in his file in case there was a problem with his self-employment tax on his retirement payments."
In the past, law firms have not worried about EEOC scrutiny of their partner retirement policies because partners have traditionally been considered employers exempt from the protection of federal anti-discrimination laws.
In its suit against Sidley Austin, the EEOC has taken the novel position that the demoted partners were employees because they never voted on firm policy and all decisions, including partner compensation, were made by the firm's self-selecting executive committee.
The suit, which is seeking back pay for the demoted partners, could have far-reaching effect on the profession, as many large law firms have adopted similarly centralized management structures in recent years.
Sidley has denied having such a policy in the face of an EEOC suit claiming the Chicago-based law firm discriminated against 31 partners on the basis of age when it demoted them to counsel in 1999. The EEOC has claimed the financial director's letter "flatly contradicts" the firm's position.
The letter, dated Oct. 21, 1999, and addressed to the Social Security Administration in Chicago, states that "it is the general policy of Sidley & Austin not to permit a partner of the firm to continue as a partner commencing the first of the year following the year age 65 is reached." The letter is signed by William B. White, financial director.
According to the EEOC motion filed last Tuesday in Chicago federal court, White testified at a July 26 deposition that he believed the letter to be an accurate statement of the firm's retirement policy at the time he signed it. But he also testified that, after conversations earlier this year with Sidley partners William F. Conlon and Theodore N. Miller, he realized the letter did not accurately state firm policy.
The lawyer representing Sidley at the deposition, Michael Conway of Chicago's Grippo & Elden, objected to questions about these conversations on the grounds that they were privileged. The EEOC is seeking to compel White's testimony about them.
"This motion presents the classic example of a Defendant seeking to use the attorney-client and work-product privileges to improperly thwart the Plaintiff's discovery into areas that are potentially damaging for the Defendant," the EEOC claims.
The agency argues the conversations are not privileged because White, who is retired but still works at Sidley on a contract basis, was not seeking legal advice from either Miller, who is vice chairman of the firm's management committee and a member of its executive committee, or Conlon, an executive committee member who acts as the firm's general counsel.
"The fact that Conlon and Miller are lawyers does not render every conversation that they have about this case privileged," the EEOC says in its motion.
Conway did not return a call seeking comment but, according to a partial transcript of the July 26 deposition, he justified his objection on the grounds that the partners "were offering legal advice."
"Miller was acting as counsel to the firm in connection with this matter," said Conway. "Having a conversation with White about activities during the scope of his employment I think is privileged."
The EEOC had moved in June to have counsel separate from the firm appointed for White. The firm quickly agreed to the appointment, but the letter received some media attention at that time, including articles in the Law Journal and the Chicago Tribune.
Represented at his deposition by his new counsel, Michael Hannafan of Chicago's Hannafan & Hannafan, White testified that he first became aware the retirement policy stated in the letter was not correct after he read the June 6 article in the Tribune. That morning, he said, firm executive director Timothy Bergen showed him the newspaper and told him he was a "celebrity." Bergen then told him to call Miller.
White later testified that Conlon also had called him about the letter and its possible inaccuracy in February 2006.
In his deposition, White also said he did not actually write the 1999 letter, only signed it. He said the letter was drafted by now-retired partner Wilbur C. Delp, who asked the financial director to sign the letter "so he could put it in his file in case there was a problem with his self-employment tax on his retirement payments."
In the past, law firms have not worried about EEOC scrutiny of their partner retirement policies because partners have traditionally been considered employers exempt from the protection of federal anti-discrimination laws.
In its suit against Sidley Austin, the EEOC has taken the novel position that the demoted partners were employees because they never voted on firm policy and all decisions, including partner compensation, were made by the firm's self-selecting executive committee.
The suit, which is seeking back pay for the demoted partners, could have far-reaching effect on the profession, as many large law firms have adopted similarly centralized management structures in recent years.
Tuesday, September 12, 2006
Court Interprets 'Ordinary Course' Under New Bankruptcy Law
Some of the most-discussed changes made by Congress under the 2005 bankruptcy act are the seemingly small, but significant, changes to the "ordinary course of business" defense concerning the avoidability of preferential transfers. Now, a bankruptcy court has addressed the issue, finding that equal weight must be given to the "subjective" pre-petition conduct of the parties and the "objective" general industry standards to determine whether a transfer was made in the "ordinary course of business."
More about bancruptcy law
More about bancruptcy law
The Untouchables
When Marc Manly, then general counsel of the midwestern energy firm Cinergy Corp., first learned of his company's possible merger with Duke Energy Corporation last year, he knew who he wanted in his corner — New York — based Skadden, Arps, Slate, Meagher & Flom. Back in 1994, Skadden had helped Cinergy's predecessor company, The Cincinnati Gas & Electric Company, fight off a hostile takeover bid by a local rival. "People told them they couldn't win," Manly says. "It's in the worst situations that you discover the true mettle of a firm."
Cincinnati Gas kept Skadden on board later that year to steer it through its friendly merger with PSI Energy, Inc., to form Cinergy. In 2005, when Cinergy started down the aisle to its $9.8 billion marriage with Charlotte, North Carolina — based Duke, Manly naturally thought of Skadden. But he soon learned that he wasn't the only one speed-dialing the firm. B. Keith Trent, then general counsel of Duke, also wanted Skadden.
After a brief standoff, the two decided to let Skadden advise Duke, so long as Trent didn't use the group of lawyers who knew Cinergy's business, Manly says. He agreed to the arrangement because he didn't want to lose Skadden's energy-related expertise, even if it was technically being wielded on the other side of the table. Today, Manly is general counsel of Duke (Trent now serves as head of litigation), and still considers Skadden his go-to firm for big deals: "They're full-service. They have expertise on every little piece of the transaction."
For the past five years, Corporate Counsel has conducted a survey of Fortune 250 general counsel, asking them to list their "primary" outside counsel. This year, 93 companies provided information on their top law firms for corporate transactions, litigation, labor and employment, and intellectual property. Those companies named a total of 380 law firms.
Our five-year look reveals at least two noteworthy trends. Skadden, propelled by the kind of loyalty shown by Manly, has ranked as the number one go-to firm for corporate transactions nearly every year. (This year it was edged out by one mention by its rival at the top, Davis Polk & Wardwell.) But it isn't the only firm that GCs love to call. Over the same five years, Chicago-based Kirkland & Ellis has captured the number one spot for litigation.
What's behind this trend? Chief legal officers readily offer a laundry list of positives to justify their devotion. William Barr, general counsel of New York — based Verizon Communications Inc., says that his relationship with Kirkland & Ellis dates back to 1994, when he became general counsel of GTE Corporation, one of the Verizon predecessor companies. Barr says that he uses more than 100 outside law firms, but that he turns to Kirkland & Ellis for "big, important litigation," as well as smaller cases, regulatory matters, and, most recently, work for Verizon Wireless, the company's joint venture with Vodafone Group Plc. Aside from the results they've achieved, Barr says the Kirkland & Ellis litigation group has a lot of depth — "strength at every level." Another plus, he says, is the firm's efficient handling of its cases: "They don't throw unnecessary bodies at a matter to gin up the billables."
Still, plenty of law firms have the same qualities. And with few exceptions, for the past five years, a remarkably stable group of firms has monopolized the top ten spots in each practice area we survey. Six of the top corporate transactions firms this year showed up in 2002, the first year we did the survey (Skadden; Davis Polk & Wardwell; Mayer, Brown, Rowe & Maw; Simpson Thacher & Bartlett; Jones Day; and Sidley Austin). In litigation, six firms appeared in both the 2006 and 2002 top ten (Kirkland; Jones Day; O'Melveny & Myers; Mayer, Brown; King & Spalding; and McGuireWoods). What's keeping these firms on top? Size, skill, the strength of the brand name, the effect of convergence (the process generally favors big firms), and a tendency to reach out to large, expensive firms when there's big, potentially costly legal business at hand. That said, our five-year look reveals a few surprises — most notably, the disappearance of the Washington, D.C., firms from the top ten list in litigation.
While chief legal officers like to talk big about keeping a close eye on legal bills, when it comes down to a bet-the-company case, they typically say that they want the massive firepower of a large firm on their side — no matter what the expense. According to the most recent Am Law 100 survey, Kirkland & Ellis certainly meets that criterion, weighing in at 983 lawyers, of which 350 or so are litigators; Skadden is at an even heftier 1,616 lawyers, with more than 700 in the corporate department. The top ten litigation firms in our survey average 1,186 lawyers, which is significantly larger than the average Am Law 100 firm.
Convergence — remember that? — also plays its part in our survey. While many companies have refined their roster of preferred providers in recent years, the big firms on our list haven't been among the casualties. Consultant Rees Morrison says he doesn't find this surprising. "Convergence favors bigger firms," since they are equipped to handle a wider array of matters, says Morrison, a principal at the Somerset, New Jersey — based legal consulting firm Hildebrandt International, Inc.
Case in point: Schering-Plough Corporation, which went through a convergence process last year and is down to a core group of seven firms, two of which — Sidley Austin and Mayer, Brown — have more than 1,000 lawyers. (Schering had no further comment on its convergence process.) And once a company has gone through convergence, it tends to stick with those who've made the cut, Morrison says.
But size isn't the whole story. Firms with a thousand-plus lawyers dot today's legal landscape like poppy seeds on a bagel. So what's the edge keeping the top firms on top? Their brand names, says Daniel DiLucchio, Jr., a principal in the Newtown Square, Pennsylvania, headquarters of legal consulting firm Altman Weil, Inc. He says cost control, the one major factor that can cause GCs to shop around, just doesn't happen at this level.
For example, Manly says that he uses local firms such as Robinson, Bradshaw & Hinson to handle small transactions — "they produce comparable work at half the price" — but there comes a point when "a transaction becomes so complicated it's worth paying the $800 or $900" an hour for a senior Skadden partner.
Even the poster child for convergence, E.I. du Pont de Nemours & Company, goes outside its network of 42 "primary law firms" for large, complicated M&A transactions, says associate general counsel Roger Arrington. In our survey, for the last three years, DuPont has listed both Cravath, Swaine & Moore and Skadden among its top outside counsel for corporate transactions — but they don't appear on the company's official primary firm list. At DuPont, there's primary, and then there's primary.
Of the four practice areas we survey, labor and employment shows the most consistency. The same firms have captured the gold, silver, and bronze since 2003 (the first year we looked at this practice area), although they've swapped places a few times. This year, Morgan, Lewis & Bockius beat out number two Littler Mendelson and third-ranked Seyfarth Shaw to grab the top slot. Hildebrandt's Morrison says that stability reflects a very mature marketplace dominated by a few brands.
That said, our survey is not quite at the level of the weather in L.A. Story, in which Steve Martin's weatherman tapes his report of "sunny again" days in advance. One interesting trend: the wholesale disappearance of Washington, D.C., firms from the list of most mentioned litigation firms. In our first surveys, four D.C. firms — Howrey; Akin Gump Strauss Hauer & Feld; Covington & Burling; and Williams & Connolly — appeared in the top ten. Today, not a one. Morrison attributes this to the Bush administration. With the Federal Trade Commission and other agencies gone "toothless," he says, there's less regulatory enforcement — hence, less need for Washington's heavy hitters.
But other than those probably temporary downturns, the big guys stay on top, buoyed by the semper fidelis disposition of corporate counsel. As Verizon's Barr says, "Why shop around when you're successful with what you've got?"
More litigation at Attorney Magazine
Cincinnati Gas kept Skadden on board later that year to steer it through its friendly merger with PSI Energy, Inc., to form Cinergy. In 2005, when Cinergy started down the aisle to its $9.8 billion marriage with Charlotte, North Carolina — based Duke, Manly naturally thought of Skadden. But he soon learned that he wasn't the only one speed-dialing the firm. B. Keith Trent, then general counsel of Duke, also wanted Skadden.
After a brief standoff, the two decided to let Skadden advise Duke, so long as Trent didn't use the group of lawyers who knew Cinergy's business, Manly says. He agreed to the arrangement because he didn't want to lose Skadden's energy-related expertise, even if it was technically being wielded on the other side of the table. Today, Manly is general counsel of Duke (Trent now serves as head of litigation), and still considers Skadden his go-to firm for big deals: "They're full-service. They have expertise on every little piece of the transaction."
For the past five years, Corporate Counsel has conducted a survey of Fortune 250 general counsel, asking them to list their "primary" outside counsel. This year, 93 companies provided information on their top law firms for corporate transactions, litigation, labor and employment, and intellectual property. Those companies named a total of 380 law firms.
Our five-year look reveals at least two noteworthy trends. Skadden, propelled by the kind of loyalty shown by Manly, has ranked as the number one go-to firm for corporate transactions nearly every year. (This year it was edged out by one mention by its rival at the top, Davis Polk & Wardwell.) But it isn't the only firm that GCs love to call. Over the same five years, Chicago-based Kirkland & Ellis has captured the number one spot for litigation.
What's behind this trend? Chief legal officers readily offer a laundry list of positives to justify their devotion. William Barr, general counsel of New York — based Verizon Communications Inc., says that his relationship with Kirkland & Ellis dates back to 1994, when he became general counsel of GTE Corporation, one of the Verizon predecessor companies. Barr says that he uses more than 100 outside law firms, but that he turns to Kirkland & Ellis for "big, important litigation," as well as smaller cases, regulatory matters, and, most recently, work for Verizon Wireless, the company's joint venture with Vodafone Group Plc. Aside from the results they've achieved, Barr says the Kirkland & Ellis litigation group has a lot of depth — "strength at every level." Another plus, he says, is the firm's efficient handling of its cases: "They don't throw unnecessary bodies at a matter to gin up the billables."
Still, plenty of law firms have the same qualities. And with few exceptions, for the past five years, a remarkably stable group of firms has monopolized the top ten spots in each practice area we survey. Six of the top corporate transactions firms this year showed up in 2002, the first year we did the survey (Skadden; Davis Polk & Wardwell; Mayer, Brown, Rowe & Maw; Simpson Thacher & Bartlett; Jones Day; and Sidley Austin). In litigation, six firms appeared in both the 2006 and 2002 top ten (Kirkland; Jones Day; O'Melveny & Myers; Mayer, Brown; King & Spalding; and McGuireWoods). What's keeping these firms on top? Size, skill, the strength of the brand name, the effect of convergence (the process generally favors big firms), and a tendency to reach out to large, expensive firms when there's big, potentially costly legal business at hand. That said, our five-year look reveals a few surprises — most notably, the disappearance of the Washington, D.C., firms from the top ten list in litigation.
While chief legal officers like to talk big about keeping a close eye on legal bills, when it comes down to a bet-the-company case, they typically say that they want the massive firepower of a large firm on their side — no matter what the expense. According to the most recent Am Law 100 survey, Kirkland & Ellis certainly meets that criterion, weighing in at 983 lawyers, of which 350 or so are litigators; Skadden is at an even heftier 1,616 lawyers, with more than 700 in the corporate department. The top ten litigation firms in our survey average 1,186 lawyers, which is significantly larger than the average Am Law 100 firm.
Convergence — remember that? — also plays its part in our survey. While many companies have refined their roster of preferred providers in recent years, the big firms on our list haven't been among the casualties. Consultant Rees Morrison says he doesn't find this surprising. "Convergence favors bigger firms," since they are equipped to handle a wider array of matters, says Morrison, a principal at the Somerset, New Jersey — based legal consulting firm Hildebrandt International, Inc.
Case in point: Schering-Plough Corporation, which went through a convergence process last year and is down to a core group of seven firms, two of which — Sidley Austin and Mayer, Brown — have more than 1,000 lawyers. (Schering had no further comment on its convergence process.) And once a company has gone through convergence, it tends to stick with those who've made the cut, Morrison says.
But size isn't the whole story. Firms with a thousand-plus lawyers dot today's legal landscape like poppy seeds on a bagel. So what's the edge keeping the top firms on top? Their brand names, says Daniel DiLucchio, Jr., a principal in the Newtown Square, Pennsylvania, headquarters of legal consulting firm Altman Weil, Inc. He says cost control, the one major factor that can cause GCs to shop around, just doesn't happen at this level.
For example, Manly says that he uses local firms such as Robinson, Bradshaw & Hinson to handle small transactions — "they produce comparable work at half the price" — but there comes a point when "a transaction becomes so complicated it's worth paying the $800 or $900" an hour for a senior Skadden partner.
Even the poster child for convergence, E.I. du Pont de Nemours & Company, goes outside its network of 42 "primary law firms" for large, complicated M&A transactions, says associate general counsel Roger Arrington. In our survey, for the last three years, DuPont has listed both Cravath, Swaine & Moore and Skadden among its top outside counsel for corporate transactions — but they don't appear on the company's official primary firm list. At DuPont, there's primary, and then there's primary.
Of the four practice areas we survey, labor and employment shows the most consistency. The same firms have captured the gold, silver, and bronze since 2003 (the first year we looked at this practice area), although they've swapped places a few times. This year, Morgan, Lewis & Bockius beat out number two Littler Mendelson and third-ranked Seyfarth Shaw to grab the top slot. Hildebrandt's Morrison says that stability reflects a very mature marketplace dominated by a few brands.
That said, our survey is not quite at the level of the weather in L.A. Story, in which Steve Martin's weatherman tapes his report of "sunny again" days in advance. One interesting trend: the wholesale disappearance of Washington, D.C., firms from the list of most mentioned litigation firms. In our first surveys, four D.C. firms — Howrey; Akin Gump Strauss Hauer & Feld; Covington & Burling; and Williams & Connolly — appeared in the top ten. Today, not a one. Morrison attributes this to the Bush administration. With the Federal Trade Commission and other agencies gone "toothless," he says, there's less regulatory enforcement — hence, less need for Washington's heavy hitters.
But other than those probably temporary downturns, the big guys stay on top, buoyed by the semper fidelis disposition of corporate counsel. As Verizon's Barr says, "Why shop around when you're successful with what you've got?"
More litigation at Attorney Magazine
Monday, September 11, 2006
Greenberg Traurig Has Big Incentive to Make Talks With Tribe Work
Miami-based law firm Greenberg Traurig is not a named defendant in the Alabama-Coushatta tribe's federal racketeering lawsuit against Greenberg's convicted former Washington lobbyist Jack Abramoff and his cohorts. But that could change in the future.
The tribe, which is deep into settlement talks with Greenberg, has a tolling agreement with the law firm. Such an agreement stipulates that if a settlement is not reached, the tribe still may sue the firm, regardless of whether the statute of limitations has passed, according to Frederick R. Petti, a Phoenix lawyer who represents the Alabama-Coushatta tribe.
Although the suit does not name Greenberg Traurig, it accuses the firm of allowing Abramoff associate Michael Scanlon to bill hours through the firm, and of allowing checks sent by the tribe to a bogus Abramoff-linked think tank to be funneled and cashed through Greenberg Traurig.
"There was a nexus between Greenberg, the enterprise and the pattern of racketeering," the suit states.
"Jack Abramoff was an employee of Greenberg Traurig and, at the end of the day, law firms are like other employers," Petti said in an interview. "They are responsible for the actions of their employees."
The lawsuit, which was filed in U.S. District Court in Austin, Texas, on July 12, names as defendants Abramoff, two other former Greenberg Traurig lobbyists, Jon Van Horne and Neil Volz, Abramoff's former close associate Scanlon, and former Christian Coalition leader Ralph Reed, who just lost the Georgia Republican primary for governor.
The lawsuit also provides fresh evidence of a closer connection between Greenberg Traurig and Michael Scanlon than the law firm has ever acknowledged. Scanlon was Abramoff's close partner in many widely criticized lobbying practices. He pleaded guilty last year to bribing a congressman.
Greenberg has always maintained that Scanlon, who ran a Washington-based public relations company called Capital Strategies, was not a Greenberg employee. But, according to the suit, internal Greenberg e-mails showed that Scanlon "billed hours to tribal clients through Greenberg and that members of the law firm, including attorneys Kevin Ring, Shawn Vasell, Stephanie Leger, Todd Boulanger and others, fabricated hours and time entries for Scanlon."
Greenberg fired Abramoff in early 2004 and has received praise from federal investigators and members of Congress for its cooperation in the Abramoff investigation.
A Greenberg Traurig spokesman tried to distance the firm from the Alabama-Coushatta suit. "The suit addresses past conduct by former employees, and the firm is not a defendant nor has it engaged in such conduct," the spokesman said via e-mail.
As to the Scanlon allegations, the spokesman said: "Consistent with our ethical obligations to clients, our firm has cooperated fully with ongoing government investigations, and refrains from commenting on matters that are the subject of such investigations."
The Alabama-Coushatta suit is the first civil suit filed against Abramoff and his associates. Last January, Abramoff, the once-powerful Republican lobbyist, pleaded guilty to fraud, tax evasion and conspiracy to bribe public officials in a deal that requires him to flip members of Congress and other political figures.
In March, U.S. District Judge Paul C. Huck in Miami sentenced the former lobbyist to 70 months in prison. Scanlon was sentenced to 51 to 63 months in prison on the charge of bribing a congressman.
None of the other defendants in the civil suit have been charged criminally.
The Alabama-Coushatta suit accuses the defendants of cooking up a scheme to block the tribe from opening a casino on its reservation, thereby benefiting the defendants' lobbying client, the Louisiana-Coushatta tribe. The Louisiana tribe is a casino competitor of the Alabama tribe.
According to the new suit, the defendants convinced the Louisiana-Coushatta tribe, which operates a casino in Kinder, La., that the Alabama tribe posed a threat to its business. The lobbyists "manipulated the Louisiana-Coushatta tribe into paying millions of dollars to stop competition in Texas," according to the suit.
The Louisiana tribe's goal was to halt Texas legislation that would grant the Alabama tribe the right to operate a casino under Texas state law. In doing so, they "violated Texas lobbying laws, set up sham entities and waged a lobbying battle fraught with misrepresentation and lies."
Ralph Reed's alleged part of the scheme was to rally Christian conservative groups to oppose the gambling bill -- even though the Alabama-Coushatta tribe is a Christian community and planned on operating a nondrinking casino, the suit says.
"They pitted Christian against Christian, tribe against tribe and cousin against cousin," according to the suit.
The defendants' plan worked and the bill was killed. Still, the tribe was able to open a small casino in Texas in November 2001. But the defendants continued targeting the casino, causing it to close less than one year later, resulting in 300 layoffs.
At that point, the suit alleges, the defendants solicited the Alabama-Coushatta tribe as a client. "They wrangled money from the Alabama-Coushatta tribe and used it for corrupt schemes and bribery at the federal level," the suit states.
According to the suit, after Greenberg hired Abramoff in 2001, he catapulted Greenberg's Washington lobbying practice into one of the top 10 in the country.
Abramoff alone generated $10 million a year in lobbying fees. In 2000, before Abramoff joined the firm, Greenberg had $3.3 million in lobbying fees, according to the suit. After he joined in 2001, the firm took in $16.2 million in fees.
By 2002, that number jumped to $17.7 million, and $25.5 million by 2003. After Abramoff was fired in early 2004, the firm's lobbying practice nosedived by 90 percent, according to the suit.
A Greenberg spokesman stated that its federal lobbying revenue in 2005 was 1 percent of its total revenues of $860 million.
According to the suit, the Louisiana-Coushatta tribe sent checks to Ralph Reed to lobby the Texas Legislature, and the checks were funneled through Greenberg Traurig.
The Louisiana-Coushatta tribe wrote checks to the American International Center, a "bogus international think tank" set up by Scanlon. The checks would be sent by FedEx to Abramoff at Greenberg. The funds were transferred from Greenberg Traurig to AIC and AIC would send a check to Reed for the amount owed. The total amount of money paid to Reed was $3.4 million, according to the suit.
The plaintiffs are seeking recovery of "tens of millions of dollars if not hundreds of millions," Petti said. That's the amount of economic damage the tribe has sustained after the casino was shuttered, he said.
Petti said he was confident about collecting damages in the event of a favorable jury verdict. But his best chance may lie in his settlement talks with Greenberg Traurig.
The Miami law firm already has settled with the Tigua tribe of Texas, the Choctaw tribe and Tyco International Ltd.
Greenberg repaid Tyco $1.5 million of about $1.8 million Tyco spent while working with Abramoff on a tax loophole issue in Congress. According to news reports, Abramoff had promised Tyco, a large Bermuda-based conglomerate, that he could help the corporation avoid incurring some taxes and continue receiving federal contracts. He said he had promises from as high up as Karl Rove, President Bush's top political adviser.
The Greenberg spokesman declined to state the total amount the firm has paid in Abramoff-related settlements, calling the details confidential.
Attorney in criminal law in Miami
The tribe, which is deep into settlement talks with Greenberg, has a tolling agreement with the law firm. Such an agreement stipulates that if a settlement is not reached, the tribe still may sue the firm, regardless of whether the statute of limitations has passed, according to Frederick R. Petti, a Phoenix lawyer who represents the Alabama-Coushatta tribe.
Although the suit does not name Greenberg Traurig, it accuses the firm of allowing Abramoff associate Michael Scanlon to bill hours through the firm, and of allowing checks sent by the tribe to a bogus Abramoff-linked think tank to be funneled and cashed through Greenberg Traurig.
"There was a nexus between Greenberg, the enterprise and the pattern of racketeering," the suit states.
"Jack Abramoff was an employee of Greenberg Traurig and, at the end of the day, law firms are like other employers," Petti said in an interview. "They are responsible for the actions of their employees."
The lawsuit, which was filed in U.S. District Court in Austin, Texas, on July 12, names as defendants Abramoff, two other former Greenberg Traurig lobbyists, Jon Van Horne and Neil Volz, Abramoff's former close associate Scanlon, and former Christian Coalition leader Ralph Reed, who just lost the Georgia Republican primary for governor.
The lawsuit also provides fresh evidence of a closer connection between Greenberg Traurig and Michael Scanlon than the law firm has ever acknowledged. Scanlon was Abramoff's close partner in many widely criticized lobbying practices. He pleaded guilty last year to bribing a congressman.
Greenberg has always maintained that Scanlon, who ran a Washington-based public relations company called Capital Strategies, was not a Greenberg employee. But, according to the suit, internal Greenberg e-mails showed that Scanlon "billed hours to tribal clients through Greenberg and that members of the law firm, including attorneys Kevin Ring, Shawn Vasell, Stephanie Leger, Todd Boulanger and others, fabricated hours and time entries for Scanlon."
Greenberg fired Abramoff in early 2004 and has received praise from federal investigators and members of Congress for its cooperation in the Abramoff investigation.
A Greenberg Traurig spokesman tried to distance the firm from the Alabama-Coushatta suit. "The suit addresses past conduct by former employees, and the firm is not a defendant nor has it engaged in such conduct," the spokesman said via e-mail.
As to the Scanlon allegations, the spokesman said: "Consistent with our ethical obligations to clients, our firm has cooperated fully with ongoing government investigations, and refrains from commenting on matters that are the subject of such investigations."
The Alabama-Coushatta suit is the first civil suit filed against Abramoff and his associates. Last January, Abramoff, the once-powerful Republican lobbyist, pleaded guilty to fraud, tax evasion and conspiracy to bribe public officials in a deal that requires him to flip members of Congress and other political figures.
In March, U.S. District Judge Paul C. Huck in Miami sentenced the former lobbyist to 70 months in prison. Scanlon was sentenced to 51 to 63 months in prison on the charge of bribing a congressman.
None of the other defendants in the civil suit have been charged criminally.
The Alabama-Coushatta suit accuses the defendants of cooking up a scheme to block the tribe from opening a casino on its reservation, thereby benefiting the defendants' lobbying client, the Louisiana-Coushatta tribe. The Louisiana tribe is a casino competitor of the Alabama tribe.
According to the new suit, the defendants convinced the Louisiana-Coushatta tribe, which operates a casino in Kinder, La., that the Alabama tribe posed a threat to its business. The lobbyists "manipulated the Louisiana-Coushatta tribe into paying millions of dollars to stop competition in Texas," according to the suit.
The Louisiana tribe's goal was to halt Texas legislation that would grant the Alabama tribe the right to operate a casino under Texas state law. In doing so, they "violated Texas lobbying laws, set up sham entities and waged a lobbying battle fraught with misrepresentation and lies."
Ralph Reed's alleged part of the scheme was to rally Christian conservative groups to oppose the gambling bill -- even though the Alabama-Coushatta tribe is a Christian community and planned on operating a nondrinking casino, the suit says.
"They pitted Christian against Christian, tribe against tribe and cousin against cousin," according to the suit.
The defendants' plan worked and the bill was killed. Still, the tribe was able to open a small casino in Texas in November 2001. But the defendants continued targeting the casino, causing it to close less than one year later, resulting in 300 layoffs.
At that point, the suit alleges, the defendants solicited the Alabama-Coushatta tribe as a client. "They wrangled money from the Alabama-Coushatta tribe and used it for corrupt schemes and bribery at the federal level," the suit states.
According to the suit, after Greenberg hired Abramoff in 2001, he catapulted Greenberg's Washington lobbying practice into one of the top 10 in the country.
Abramoff alone generated $10 million a year in lobbying fees. In 2000, before Abramoff joined the firm, Greenberg had $3.3 million in lobbying fees, according to the suit. After he joined in 2001, the firm took in $16.2 million in fees.
By 2002, that number jumped to $17.7 million, and $25.5 million by 2003. After Abramoff was fired in early 2004, the firm's lobbying practice nosedived by 90 percent, according to the suit.
A Greenberg spokesman stated that its federal lobbying revenue in 2005 was 1 percent of its total revenues of $860 million.
According to the suit, the Louisiana-Coushatta tribe sent checks to Ralph Reed to lobby the Texas Legislature, and the checks were funneled through Greenberg Traurig.
The Louisiana-Coushatta tribe wrote checks to the American International Center, a "bogus international think tank" set up by Scanlon. The checks would be sent by FedEx to Abramoff at Greenberg. The funds were transferred from Greenberg Traurig to AIC and AIC would send a check to Reed for the amount owed. The total amount of money paid to Reed was $3.4 million, according to the suit.
The plaintiffs are seeking recovery of "tens of millions of dollars if not hundreds of millions," Petti said. That's the amount of economic damage the tribe has sustained after the casino was shuttered, he said.
Petti said he was confident about collecting damages in the event of a favorable jury verdict. But his best chance may lie in his settlement talks with Greenberg Traurig.
The Miami law firm already has settled with the Tigua tribe of Texas, the Choctaw tribe and Tyco International Ltd.
Greenberg repaid Tyco $1.5 million of about $1.8 million Tyco spent while working with Abramoff on a tax loophole issue in Congress. According to news reports, Abramoff had promised Tyco, a large Bermuda-based conglomerate, that he could help the corporation avoid incurring some taxes and continue receiving federal contracts. He said he had promises from as high up as Karl Rove, President Bush's top political adviser.
The Greenberg spokesman declined to state the total amount the firm has paid in Abramoff-related settlements, calling the details confidential.
Attorney in criminal law in Miami
Defense Scores in Pension Plan Stock-Drop Suits
Defense attorneys are hailing a series of recent court victories in lawsuits filed on behalf of employees who lost money in their 401(k) and other retirement plans because of the declining price of their employer's stock.
The so-called "stock-drop" suits, which were filed under the Employee Retirement Income Security Act of 1974, or ERISA, were brought alongside hundreds of shareholder class actions following the demise of Enron Corp.
In the past year, several rulings -- coupled with an action by the U.S. Department of Labor -- have put limits on the liability of directed trustees, who are hired by an employer to manage employee retirement plans.
Plaintiffs allege that companies and trustees they hire to manage their retirement plans had a fiduciary duty to shift employee investments out of their stock after learning of an impending decline in the share price. So far, many of the cases have settled or survived defendants' motions to dismiss their claims.
But in the first trial among the ERISA stock-drop cases, a federal judge in June limited that liability by ruling that US Airways, which administered its employees' 401(k) fund, did not have a fiduciary duty to change the company stock holdings of its employees who had a myriad of investment options from which to choose. DiFelice v. US Airways, No. 04cv00889 (E.D. Va.).
Christopher Weals, a partner in the Washington office of Morgan, Lewis & Bockius who represents US Airways, said that the rulings signal "a potential shift in this law."
"We see this as an obviously promising and positive development for employers fighting these cases," he said. "There have been many settlements in these cases. Some of the settlements have been very large, from $10 million to $100 million. It's a breath of fresh air to look at the theories and say there's not a lot there."
Plaintiffs lawyers note that most of their cases have survived dismissal, but they acknowledge that the recent rulings are changing the way they litigate them.
"There is a trend toward limiting the liability of outside trustees," said Edwin Mills, of counsel at New York's Stull, Stull & Brody who recently negotiated a $100 million proposed settlement fund with Time Warner Inc. in an ERISA stock-drop case. "I wouldn't name a directed trustee unless it's an exceptional issue. Six months or a year ago, I would have said differently."
Defense attorney William Kilberg, a partner at Los Angeles-based Gibson, Dunn & Crutcher, is similarly encouraged.
"We're starting to see these cases get litigated and to completion," he said. "The position that I and other defense lawyers have been advocating is: There is less to these than meets the eye."
GETTING CREATIVE
The latest wave of lawsuits were filed in the midst of corporate wrongdoing scandals that followed Enron, whose employees suffered widespread financial losses in their retirement plans that were tied to the company stock.
"You have widespread corporate fraud or alleged mismanagement that's the driving cause of the plan's problems," said Jeffrey Lewis, a shareholder at Lewis, Feinberg, Renaker & Jackson in Oakland, Calif. "Given the volume of litigation, lawyers are getting creative. People are coming up with new theories on the plaintiffs' and defense side."
Many of the original suits were filed against the members of corporate committees who oversee employee retirement plans and the outside trustees hired to manage those investments, such as Merrill Lynch & Co. and State Street Corp.
Rulings in the cases have focused in large part on motions to dismiss, most of which have been denied as judges point to certain circumstances in which plaintiffs lawyers might be able to prove that a breach of fiduciary duty occurred.
LIMITED VIEW
But in the past year, judges have made new rulings as more facts in the cases come to light.
The recent rulings come on the heels of a field assistance bulletin issued by the U.S. Department of Labor in December 2004 that limits the fiduciary duty of directed trustees.
In the bulletin, the Labor Department said that a directed trustee, who typically takes orders from an employer, has an obligation to question the prudence of holding a company's stock only if the trustee were in possession of information that had not been made public.
"Following that, the case law began to turn," Lewis said. "There were three decisions after that that endorsed or went further than Department of Labor."
The first ruling came in an ongoing ERISA stock-drop case against WorldCom Inc., which is now a subsidiary of Verizon Communications Inc. In re WorldCom Inc. ERISA Litigation, 354 F. Supp. 2d 423 (S.D.N.Y. 2005).
Employees at WorldCom lost money in their 401(k) plans after the company announced in June 2002 that it would restate financial reports due to $3.8 billion in accounting irregularities. As part of the case, plaintiffs lawyers sued Merrill Lynch Trust Co. FSB, alleging that as a trustee of the 401(k) plan the financial firm breached its fiduciary duty by continuing to hold WorldCom stock while knowing of the company's financial troubles.
In February 2005, U.S. District Judge Denise Cote granted summary judgment to Merrill Lynch, stating that a directed trustee had a fiduciary duty to override 401(k) investments in company stock only if there was nonpublic information indicating concerns about its financial health.
"The Department of Labor bulletin was a great help in the case," said Paul Blankenstein, of counsel to the Washington office of Gibson, Dunn & Crutcher who represented Merrill Lynch.
Lynn Sarko, managing partner of Seattle-based Keller Rohrback, plaintiffs lawyer in the WorldCom case, dismissed any negative impact of the ruling, which he said could help in future cases by providing clarity on the liability of directed trustees.
"Clearly, if the directed trustee has less liability because they had a right to take direction from people giving them instructions, it makes the case get easier and better against the regular fiduciary [the retirement plan committees] because they're the ones who are responsible," he said. "As plaintiffs' attorneys, we don't really care who pays."
As part of the case, the WorldCom defendants agreed to settlements totaling more than $47 million.
SPREADING RISK
The second ruling came in the DeFelice case brought against US Airways, and the first ERISA stock-drop case to go to trial. On June 26, U.S. District Judge T.S. Ellis said that the risks associated with holding the company's stock were appropriate given that employees had a portfolio of various investments in their retirement plans.
"If you have lots of choices and the choices allow you to diversify your portfolio and spread risk around, in that context company stock is perfectly OK," said Weals, who represents US Airways.
The judge also noted that executives at US Airways, which was facing bankruptcy following the terrorist attacks of Sept. 11, 2001, took steps to protect employee investors, such as looking for an independent fiduciary to manage the 401(k) plan.
But Richard Finberg, a partner at Pittsburgh-based Malakoff, Doyle & Finberg, who represents the plaintiffs, said, "they didn't act soon enough."
"Beginning right after Sept. 11, they should have done steps to protect the participants," he said. "That should have happened much sooner when the plan had half as many shares."
He said he has filed a notice of appeal to the 4th U.S. Circuit Court of Appeals.
In the third ruling, Judge Richard Posner of the 7th Circuit wrote in a June 28 opinion that a directed trustee, State Street, did not violate its fiduciary duty by retaining in employee retirement plans stock of the employer, UAL Corp., the parent company of United Airlines. Summers v. State Street Bank & Trust Co., nos. 05-4005, 05-4317 (7th Cir. June 28, 2006).
In a lengthy opinion peppered with economic theories, Posner also said that other factors such as a company's debt-equity ratio would be better measures of determining UAL's economic health than reliance entirely on stock price.
Randall Sunshine, a partner at Los Angeles-based Liner Yankelevitz Sunshine & Regenstreif who represents State Street, issued a statement on the ruling: "This is a landmark decision because it is the first appellate decision to address the fiduciary duties of directed trustees," he said. "The court's decision follows the trend set by the U.S. Department of Labor's guidance."
Steve Berman, managing partner of Seattle-based Hagens Berman Sobol Shapiro, which brought the case against State Street, did not return calls seeking comment.
PLAINTIFFS ROADMAP
Sarko said that Posner's decision didn't eliminate the viability of ERISA stock-drop cases, but clarified that plaintiffs needed to argue about more than just the drop in the stock price.
"What Judge Posner did was give plaintiffs a roadmap to an easy and clear way to plead the case," said Sarko, who has brought new suits against Delphi Corp. and Ford Motor Co.
He and other plaintiffs lawyers noted their overwhelming success in obtaining recent opinions in which judges denied motions to dismiss, such as in cases against Goodyear Tire & Rubber Co., AON Corp. and Cardinal Health Inc.
But other plaintiffs lawyers acknowledge the difficulties in bringing ERISA stock-drop cases against trustees given the recent court decisions. Many of the suits now target only the 401(k) committee or the corporation whose stock declined, said Mills. He noted that he did not sue the directed trustee in recent cases he brought against Sears, Roebuck & Co., now Sears Holding, and Tribune Co. because of the recent rulings.
Mills said that eliminating the directed trustee as a defendant could add challenges in cases where the company has filed for bankruptcy protection, even when insurers foot the legal bills.
"It's a tough go, but it's doable," he said.
Attorney Magazine
The so-called "stock-drop" suits, which were filed under the Employee Retirement Income Security Act of 1974, or ERISA, were brought alongside hundreds of shareholder class actions following the demise of Enron Corp.
In the past year, several rulings -- coupled with an action by the U.S. Department of Labor -- have put limits on the liability of directed trustees, who are hired by an employer to manage employee retirement plans.
Plaintiffs allege that companies and trustees they hire to manage their retirement plans had a fiduciary duty to shift employee investments out of their stock after learning of an impending decline in the share price. So far, many of the cases have settled or survived defendants' motions to dismiss their claims.
But in the first trial among the ERISA stock-drop cases, a federal judge in June limited that liability by ruling that US Airways, which administered its employees' 401(k) fund, did not have a fiduciary duty to change the company stock holdings of its employees who had a myriad of investment options from which to choose. DiFelice v. US Airways, No. 04cv00889 (E.D. Va.).
Christopher Weals, a partner in the Washington office of Morgan, Lewis & Bockius who represents US Airways, said that the rulings signal "a potential shift in this law."
"We see this as an obviously promising and positive development for employers fighting these cases," he said. "There have been many settlements in these cases. Some of the settlements have been very large, from $10 million to $100 million. It's a breath of fresh air to look at the theories and say there's not a lot there."
Plaintiffs lawyers note that most of their cases have survived dismissal, but they acknowledge that the recent rulings are changing the way they litigate them.
"There is a trend toward limiting the liability of outside trustees," said Edwin Mills, of counsel at New York's Stull, Stull & Brody who recently negotiated a $100 million proposed settlement fund with Time Warner Inc. in an ERISA stock-drop case. "I wouldn't name a directed trustee unless it's an exceptional issue. Six months or a year ago, I would have said differently."
Defense attorney William Kilberg, a partner at Los Angeles-based Gibson, Dunn & Crutcher, is similarly encouraged.
"We're starting to see these cases get litigated and to completion," he said. "The position that I and other defense lawyers have been advocating is: There is less to these than meets the eye."
GETTING CREATIVE
The latest wave of lawsuits were filed in the midst of corporate wrongdoing scandals that followed Enron, whose employees suffered widespread financial losses in their retirement plans that were tied to the company stock.
"You have widespread corporate fraud or alleged mismanagement that's the driving cause of the plan's problems," said Jeffrey Lewis, a shareholder at Lewis, Feinberg, Renaker & Jackson in Oakland, Calif. "Given the volume of litigation, lawyers are getting creative. People are coming up with new theories on the plaintiffs' and defense side."
Many of the original suits were filed against the members of corporate committees who oversee employee retirement plans and the outside trustees hired to manage those investments, such as Merrill Lynch & Co. and State Street Corp.
Rulings in the cases have focused in large part on motions to dismiss, most of which have been denied as judges point to certain circumstances in which plaintiffs lawyers might be able to prove that a breach of fiduciary duty occurred.
LIMITED VIEW
But in the past year, judges have made new rulings as more facts in the cases come to light.
The recent rulings come on the heels of a field assistance bulletin issued by the U.S. Department of Labor in December 2004 that limits the fiduciary duty of directed trustees.
In the bulletin, the Labor Department said that a directed trustee, who typically takes orders from an employer, has an obligation to question the prudence of holding a company's stock only if the trustee were in possession of information that had not been made public.
"Following that, the case law began to turn," Lewis said. "There were three decisions after that that endorsed or went further than Department of Labor."
The first ruling came in an ongoing ERISA stock-drop case against WorldCom Inc., which is now a subsidiary of Verizon Communications Inc. In re WorldCom Inc. ERISA Litigation, 354 F. Supp. 2d 423 (S.D.N.Y. 2005).
Employees at WorldCom lost money in their 401(k) plans after the company announced in June 2002 that it would restate financial reports due to $3.8 billion in accounting irregularities. As part of the case, plaintiffs lawyers sued Merrill Lynch Trust Co. FSB, alleging that as a trustee of the 401(k) plan the financial firm breached its fiduciary duty by continuing to hold WorldCom stock while knowing of the company's financial troubles.
In February 2005, U.S. District Judge Denise Cote granted summary judgment to Merrill Lynch, stating that a directed trustee had a fiduciary duty to override 401(k) investments in company stock only if there was nonpublic information indicating concerns about its financial health.
"The Department of Labor bulletin was a great help in the case," said Paul Blankenstein, of counsel to the Washington office of Gibson, Dunn & Crutcher who represented Merrill Lynch.
Lynn Sarko, managing partner of Seattle-based Keller Rohrback, plaintiffs lawyer in the WorldCom case, dismissed any negative impact of the ruling, which he said could help in future cases by providing clarity on the liability of directed trustees.
"Clearly, if the directed trustee has less liability because they had a right to take direction from people giving them instructions, it makes the case get easier and better against the regular fiduciary [the retirement plan committees] because they're the ones who are responsible," he said. "As plaintiffs' attorneys, we don't really care who pays."
As part of the case, the WorldCom defendants agreed to settlements totaling more than $47 million.
SPREADING RISK
The second ruling came in the DeFelice case brought against US Airways, and the first ERISA stock-drop case to go to trial. On June 26, U.S. District Judge T.S. Ellis said that the risks associated with holding the company's stock were appropriate given that employees had a portfolio of various investments in their retirement plans.
"If you have lots of choices and the choices allow you to diversify your portfolio and spread risk around, in that context company stock is perfectly OK," said Weals, who represents US Airways.
The judge also noted that executives at US Airways, which was facing bankruptcy following the terrorist attacks of Sept. 11, 2001, took steps to protect employee investors, such as looking for an independent fiduciary to manage the 401(k) plan.
But Richard Finberg, a partner at Pittsburgh-based Malakoff, Doyle & Finberg, who represents the plaintiffs, said, "they didn't act soon enough."
"Beginning right after Sept. 11, they should have done steps to protect the participants," he said. "That should have happened much sooner when the plan had half as many shares."
He said he has filed a notice of appeal to the 4th U.S. Circuit Court of Appeals.
In the third ruling, Judge Richard Posner of the 7th Circuit wrote in a June 28 opinion that a directed trustee, State Street, did not violate its fiduciary duty by retaining in employee retirement plans stock of the employer, UAL Corp., the parent company of United Airlines. Summers v. State Street Bank & Trust Co., nos. 05-4005, 05-4317 (7th Cir. June 28, 2006).
In a lengthy opinion peppered with economic theories, Posner also said that other factors such as a company's debt-equity ratio would be better measures of determining UAL's economic health than reliance entirely on stock price.
Randall Sunshine, a partner at Los Angeles-based Liner Yankelevitz Sunshine & Regenstreif who represents State Street, issued a statement on the ruling: "This is a landmark decision because it is the first appellate decision to address the fiduciary duties of directed trustees," he said. "The court's decision follows the trend set by the U.S. Department of Labor's guidance."
Steve Berman, managing partner of Seattle-based Hagens Berman Sobol Shapiro, which brought the case against State Street, did not return calls seeking comment.
PLAINTIFFS ROADMAP
Sarko said that Posner's decision didn't eliminate the viability of ERISA stock-drop cases, but clarified that plaintiffs needed to argue about more than just the drop in the stock price.
"What Judge Posner did was give plaintiffs a roadmap to an easy and clear way to plead the case," said Sarko, who has brought new suits against Delphi Corp. and Ford Motor Co.
He and other plaintiffs lawyers noted their overwhelming success in obtaining recent opinions in which judges denied motions to dismiss, such as in cases against Goodyear Tire & Rubber Co., AON Corp. and Cardinal Health Inc.
But other plaintiffs lawyers acknowledge the difficulties in bringing ERISA stock-drop cases against trustees given the recent court decisions. Many of the suits now target only the 401(k) committee or the corporation whose stock declined, said Mills. He noted that he did not sue the directed trustee in recent cases he brought against Sears, Roebuck & Co., now Sears Holding, and Tribune Co. because of the recent rulings.
Mills said that eliminating the directed trustee as a defendant could add challenges in cases where the company has filed for bankruptcy protection, even when insurers foot the legal bills.
"It's a tough go, but it's doable," he said.
Attorney Magazine
While excoriating prosecutors, Judge Lewis Kaplan has also exposed the tactics of KPMG counsel Robert BennetT
On July 20, after his latest round of hearings in the KPMG L.L.P. tax shelter case, flame-throwing federal district court judge Lewis Kaplan had a new demand: He ordered lawyers for the 16 former KPMG partners or employees who are defendants to submit affidavits disclosing who had referred their clients to them. The reason, as Judge Kaplan explained at the hearing, was his concern that KPMG and its lawyers at Skadden, Arps, Slate, Meagher & Flom had directed the individual defendants to lawyers "who would understand that the best thing to do here for these individuals would be what was in KPMG's best interest."
Judge Kaplan isn't likely to find any damning evidence in the affidavits; only two of the KPMG defendants, according to the affidavits, are still using lawyers referred by Skadden. But the judge's extended investigation of the KPMG prosecution has thrown a spotlight on KPMG's lead outside counsel, Skadden partner Robert Bennett-exposing defense tactics usually confined to the shadows of white-collar dealmaking. According to Stephanie Martz of the National Association of Criminal Defense Lawyers, Judge Kaplan's call for affidavits sent "a message that he perceives that what happened [in Skadden's representation of KPMG] was, if not over the line, then awfully close to it."
In 2004 KPMG was nearly indicted by prosecutors from the Southern District of New York for creating and promoting allegedly illegal tax shelters. But after 18 months of intense negotiations, in August 2005 Bennett secured a deferred prosecution agreement for KPMG, which agreed to pay $456 million. Shortly thereafter, in what's been called the biggest tax case in American history, the U.S. Department of Justice indicted 17 former KPMG employees and two outside professionals on charges of creating abusive tax shelters and selling them to investors. (One KPMG defendant has since pled guilty.) American Attorney Portal
But in recent months Judge Kaplan has turned the case into an investigation of the conduct of the government and KPMG. Spurred by counsel for individual defendants, including David Spears of Spears & Imes and Ronald DePetris of DePetris & Bachrach, the judge has called two hearings to examine claims that KPMG, at the prosecutors' behest, exerted pressure on individual defendants that amounted to a violation of their constitutional rights.
In a landmark ruling in June, Kaplan ruled that the Justice Department's Thompson Memorandum, which governs the treatment of corporate defendants, led KPMG to cut off legal fees for its indicted employees-thus depriving them of constitutional rights against self-incrimination as well as their right to counsel. And in late July, Kaplan found that two defendants had been coerced into meeting with prosecutors by the threat of losing their legal fees. He suppressed their statements. The criminal trial, originally scheduled for this month, has been postponed until January.
Meanwhile, Bennett's tactics in KPMG's defense emerged as evidence in the two hearings before Judge Kaplan-and have set defense lawyers in the case buzzing. One key document, cited in both of Kaplan's rulings, is a set of notes taken by Internal Revenue Service special agent Laura Mercandetti, the government's principal note-taker, at a February 25, 2004, meeting attended by, among others, prosecutors Justin Weddle, Shirah Neiman, and Stanley Okula, Jr., and Skadden partners Bennett and Kenneth Bialkin.
At the meeting, prosecutors made it clear they would be scrutinizing KPMG's payment of the legal fees of its employees-one of the elements of the Thompson memo. When Weddle asked if KPMG intended to pay the fees, Bennett and Bialkin explained that KPMG generally paid the legal fees of its partners. But in this case, the accounting firm offered to include a condition for payment that Bennett later called unprecedented: It would cut off legal fees to anyone who didn't cooperate.
Moreover, according to Mercandetti's notes, Bennett told prosecutors that he would refer individual defendants to lawyers "who understand cooperation is the best way to go in this type of a case." Mercandetti wrote, "He feels it is in the best interests of KPMG for [its] people to get attorneys that will cooperate."
In a formal memo on the meeting, the agent elaborated: "Mr. Bennett stated that this would also help him keep control [and] that he would want to know the fruits of the witness interviews. . . . Bennett stated that he had two firms in mind, both in the Washington, D.C., area."
Bennett and the Skadden team proceeded to push individual defendants to talk. Soon after the February 25, 2004, meeting, KPMG informed prosecutors and targeted employees that it would pay legal fees up to $400,000-but only if employees cooperated with the government and did not assert their Fifth Amendment rights. When a KPMG defendant did not meet the government's standard of cooperation, prosecutors informed Skadden, which in turn fired off letters to the defendants' lawyers, warning that their fees would be cut off unless their clients acquiesced to prosecutors' demands within ten days.
In a last-ditch effort to block KPMG's indictment, the Skadden team touted its tactics in a June 13, 2005, meeting with then-deputy attorney general James Comey. According to a Skadden-prepared memo on the meeting that was cited by Judge Kaplan, Bennett said KPMG's conditioning of attorneys' fees on cooperation with the government was "never heard of before." The Skadden memo quoted Bennett: " 'We said we'd pressure-although we didn't use that word-our employees to cooperate.' . . . This process exhibited 'a level of cooperation that is rarely done.' " The strategy worked: In August 2005 KPMG averted indictment and entered into the deferred prosecution agreement.
The February 25, 2004, meeting between prosecutors and Skadden lawyers is now a linchpin for the arguments of the individual defendants. Mercandetti's notes were introduced and discussed in detail during three days of hearings before Judge Kaplan in May, and cited in both of Kaplan's KPMG opinions. At the July hearings, Kaplan referred to the notes when he mentioned the possibility of additional hearings on defense attorneys' conflict of interest. "This is not some academic exercise," he said. "We have documentary evidence . . . about Mr. Bennett assuring Mr. Weddle that he had in mind trying to get lawyers [who would cooperate]."
While some see Bennett's comments as a deft display of his negotiating skills, other lawyers in the case see Bennett's offer to line up cooperative lawyers as unseemly. "I found it shocking," says Robert Fink of Kostelanetz & Fink, who represents Richard Smith, a former vice-chairman of KPMG. Stanley Arkin of Arkin Kaplan Rice, who represents defendant Jeffrey Eischeid, says of Bennett, "What he did here is beyond ruthless."
Bennett denies the suggestion that his referrals compromised individual defendants. "Any suggestion that we steered people to attorneys who would tell them to cooperate because it would be in KPMG's interest is absolutely false and outrageous," he says. "I never saw the [agent's] notes. But that's not how I would have put it. . . . I might have said, we're not about circling the wagons."
Bennett cites some of the lawyers he recommended to KPMG defendants-such preeminent white-collar defenders as C. Michael Buxton of Vinson & Elkins, E. Lawrence Barcella of Paul, Hastings, Janofsky & Walker, and Michael Madigan of Akin Gump Strauss Hauer & Feld-as proof that he referred lawyers who would act only in the best interests of their clients. "These are not stooges," Bennett says. "On its face, that's preposterous."
"I've known and worked with Bob Bennett for 35 years," says Henry Schuelke III of Janis, Schuelke & Wechsler. "I've never known him to ask or expect that a lawyer to whom he refers a client will . . . do anything not in the client's interest." (Bennett referred former KPMG vice-chairman Smith to Schuelke, but Smith retained Fink instead.)
Nor was there anything wrong, Bennett says, with the conditions KPMG placed on attorneys' fees for partners and employees. The firm is a partnership with no obligation to pay legal fees, he says, and KPMG had every interest in proving its commitment to cooperation. "The posture of the partnership was that they wanted these people to fully cooperate," Bennett says.
So far, Kaplan has held the government-not KPMG or Skadden-responsible for using attorneys' fees as a bludgeon. "KPMG took the only course open to it," the judge wrote in his July 25 ruling. But Judge Kaplan is also overseeing the defendants' civil suit against KPMG for legal fees. One lawyer in that case, who asked not to be named because the litigation is ongoing, predicts that if the defendants pursue a breach of fiduciary duty claim against KPMG, they will cite Bennett's comments, as recorded in the Mercandetti memo.
Another defense lawyer once involved in the KPMG case says the exposure of Bennett's predicament may make white-collar defense in the Thompson memo era a little easier, by cautioning prosecutors not to push for unconstitutional concessions.
"Bennett was in a position that was almost untenable," says this lawyer. "The client was in a panic, not without justification, and the government made a condition of cooperation a Sixth Amendment violation." He adds, "There may well be a savior for the rest of us in Judge Kaplan's opinion."
Judge Kaplan isn't likely to find any damning evidence in the affidavits; only two of the KPMG defendants, according to the affidavits, are still using lawyers referred by Skadden. But the judge's extended investigation of the KPMG prosecution has thrown a spotlight on KPMG's lead outside counsel, Skadden partner Robert Bennett-exposing defense tactics usually confined to the shadows of white-collar dealmaking. According to Stephanie Martz of the National Association of Criminal Defense Lawyers, Judge Kaplan's call for affidavits sent "a message that he perceives that what happened [in Skadden's representation of KPMG] was, if not over the line, then awfully close to it."
In 2004 KPMG was nearly indicted by prosecutors from the Southern District of New York for creating and promoting allegedly illegal tax shelters. But after 18 months of intense negotiations, in August 2005 Bennett secured a deferred prosecution agreement for KPMG, which agreed to pay $456 million. Shortly thereafter, in what's been called the biggest tax case in American history, the U.S. Department of Justice indicted 17 former KPMG employees and two outside professionals on charges of creating abusive tax shelters and selling them to investors. (One KPMG defendant has since pled guilty.) American Attorney Portal
But in recent months Judge Kaplan has turned the case into an investigation of the conduct of the government and KPMG. Spurred by counsel for individual defendants, including David Spears of Spears & Imes and Ronald DePetris of DePetris & Bachrach, the judge has called two hearings to examine claims that KPMG, at the prosecutors' behest, exerted pressure on individual defendants that amounted to a violation of their constitutional rights.
In a landmark ruling in June, Kaplan ruled that the Justice Department's Thompson Memorandum, which governs the treatment of corporate defendants, led KPMG to cut off legal fees for its indicted employees-thus depriving them of constitutional rights against self-incrimination as well as their right to counsel. And in late July, Kaplan found that two defendants had been coerced into meeting with prosecutors by the threat of losing their legal fees. He suppressed their statements. The criminal trial, originally scheduled for this month, has been postponed until January.
Meanwhile, Bennett's tactics in KPMG's defense emerged as evidence in the two hearings before Judge Kaplan-and have set defense lawyers in the case buzzing. One key document, cited in both of Kaplan's rulings, is a set of notes taken by Internal Revenue Service special agent Laura Mercandetti, the government's principal note-taker, at a February 25, 2004, meeting attended by, among others, prosecutors Justin Weddle, Shirah Neiman, and Stanley Okula, Jr., and Skadden partners Bennett and Kenneth Bialkin.
At the meeting, prosecutors made it clear they would be scrutinizing KPMG's payment of the legal fees of its employees-one of the elements of the Thompson memo. When Weddle asked if KPMG intended to pay the fees, Bennett and Bialkin explained that KPMG generally paid the legal fees of its partners. But in this case, the accounting firm offered to include a condition for payment that Bennett later called unprecedented: It would cut off legal fees to anyone who didn't cooperate.
Moreover, according to Mercandetti's notes, Bennett told prosecutors that he would refer individual defendants to lawyers "who understand cooperation is the best way to go in this type of a case." Mercandetti wrote, "He feels it is in the best interests of KPMG for [its] people to get attorneys that will cooperate."
In a formal memo on the meeting, the agent elaborated: "Mr. Bennett stated that this would also help him keep control [and] that he would want to know the fruits of the witness interviews. . . . Bennett stated that he had two firms in mind, both in the Washington, D.C., area."
Bennett and the Skadden team proceeded to push individual defendants to talk. Soon after the February 25, 2004, meeting, KPMG informed prosecutors and targeted employees that it would pay legal fees up to $400,000-but only if employees cooperated with the government and did not assert their Fifth Amendment rights. When a KPMG defendant did not meet the government's standard of cooperation, prosecutors informed Skadden, which in turn fired off letters to the defendants' lawyers, warning that their fees would be cut off unless their clients acquiesced to prosecutors' demands within ten days.
In a last-ditch effort to block KPMG's indictment, the Skadden team touted its tactics in a June 13, 2005, meeting with then-deputy attorney general James Comey. According to a Skadden-prepared memo on the meeting that was cited by Judge Kaplan, Bennett said KPMG's conditioning of attorneys' fees on cooperation with the government was "never heard of before." The Skadden memo quoted Bennett: " 'We said we'd pressure-although we didn't use that word-our employees to cooperate.' . . . This process exhibited 'a level of cooperation that is rarely done.' " The strategy worked: In August 2005 KPMG averted indictment and entered into the deferred prosecution agreement.
The February 25, 2004, meeting between prosecutors and Skadden lawyers is now a linchpin for the arguments of the individual defendants. Mercandetti's notes were introduced and discussed in detail during three days of hearings before Judge Kaplan in May, and cited in both of Kaplan's KPMG opinions. At the July hearings, Kaplan referred to the notes when he mentioned the possibility of additional hearings on defense attorneys' conflict of interest. "This is not some academic exercise," he said. "We have documentary evidence . . . about Mr. Bennett assuring Mr. Weddle that he had in mind trying to get lawyers [who would cooperate]."
While some see Bennett's comments as a deft display of his negotiating skills, other lawyers in the case see Bennett's offer to line up cooperative lawyers as unseemly. "I found it shocking," says Robert Fink of Kostelanetz & Fink, who represents Richard Smith, a former vice-chairman of KPMG. Stanley Arkin of Arkin Kaplan Rice, who represents defendant Jeffrey Eischeid, says of Bennett, "What he did here is beyond ruthless."
Bennett denies the suggestion that his referrals compromised individual defendants. "Any suggestion that we steered people to attorneys who would tell them to cooperate because it would be in KPMG's interest is absolutely false and outrageous," he says. "I never saw the [agent's] notes. But that's not how I would have put it. . . . I might have said, we're not about circling the wagons."
Bennett cites some of the lawyers he recommended to KPMG defendants-such preeminent white-collar defenders as C. Michael Buxton of Vinson & Elkins, E. Lawrence Barcella of Paul, Hastings, Janofsky & Walker, and Michael Madigan of Akin Gump Strauss Hauer & Feld-as proof that he referred lawyers who would act only in the best interests of their clients. "These are not stooges," Bennett says. "On its face, that's preposterous."
"I've known and worked with Bob Bennett for 35 years," says Henry Schuelke III of Janis, Schuelke & Wechsler. "I've never known him to ask or expect that a lawyer to whom he refers a client will . . . do anything not in the client's interest." (Bennett referred former KPMG vice-chairman Smith to Schuelke, but Smith retained Fink instead.)
Nor was there anything wrong, Bennett says, with the conditions KPMG placed on attorneys' fees for partners and employees. The firm is a partnership with no obligation to pay legal fees, he says, and KPMG had every interest in proving its commitment to cooperation. "The posture of the partnership was that they wanted these people to fully cooperate," Bennett says.
So far, Kaplan has held the government-not KPMG or Skadden-responsible for using attorneys' fees as a bludgeon. "KPMG took the only course open to it," the judge wrote in his July 25 ruling. But Judge Kaplan is also overseeing the defendants' civil suit against KPMG for legal fees. One lawyer in that case, who asked not to be named because the litigation is ongoing, predicts that if the defendants pursue a breach of fiduciary duty claim against KPMG, they will cite Bennett's comments, as recorded in the Mercandetti memo.
Another defense lawyer once involved in the KPMG case says the exposure of Bennett's predicament may make white-collar defense in the Thompson memo era a little easier, by cautioning prosecutors not to push for unconstitutional concessions.
"Bennett was in a position that was almost untenable," says this lawyer. "The client was in a panic, not without justification, and the government made a condition of cooperation a Sixth Amendment violation." He adds, "There may well be a savior for the rest of us in Judge Kaplan's opinion."
Sunday, September 10, 2006
Inside the biggest criminal trial of the year with the jury consultants who helped prosecutors and the defense chart their cours
How bad did things look for Jeffrey Skilling and Kenneth Lay as they went to trial in January? If the numbers were any indication, pretty dismal. Three out of four mock juries hired to listen to their defense team present the case concluded that the pair were guilty. And seven of the eight juries who looked just at Lay's case voted to convict him as well. The defense was holding on to one glimmer of hope. Their jury consultants had found that a few people might-emphasis on might-be willing to consider the possibility that other executives were to blame for the Enron debacle and that no human being could possibly monitor every aspect of a multibillion-dollar company's affairs.
Still, the defense team could almost hear the jailhouse door slamming in the distance. Prosecutors had appeared to be on the verge of a slam dunk. But things weren't going so well for them, either. The Enron case had given prosecutors an embarrassment of riches, but they were struggling with a story that only an accountant could love. Was a working-class Houston juror going to relate to a tale of mark-to-market write-downs and revenue recognition? No one was going to confuse this case with a Grisham thriller, and the prosecution team plotted with their jury consultants to keep from losing a sure thing.
By now, everyone knows that Lay and Skilling were convicted on May 25 of multiple counts of conspiracy and securities fraud, that Lay died, and that Skilling is planning to fight on with an appeal. But in the months leading up to the trial, the outcome appeared much less certain to both sides. Their focus was on getting the best jury they could and on crafting a convincing and compelling story. They brought on three veteran jury consultants to help them battle for an advantage: Jo-Ellan Dimitrius, for the prosecution; Robert Hirschhorn, who worked for Lay; and Reiko Hasuike, who advised Skilling.
Over the course of five months, The American Attorney Magazine talked with the three consultants, who shared the strategies they employed in the Enron case. The consultants concur on one thing in particular: that early victories by the prosecution on jury issues were pivotal in getting a conviction. "The venue and the jury selection were the only things that could have made the difference [for the defense]," Hasuike says. Dimitrius was key in helping the prosecution score wins on both points-getting Judge Simeon Lake III to keep the trial in Houston and making it easy for him to limit voir dire.
Meanwhile, everything that could go wrong for the defense team did. It was stuck with a jury from Enron's hometown and given almost no time to question prospective jurors. There were problems behind the scenes, as well: Hirschhorn wasn't able to coach Lay prior to his testimony-and the Enron chairman turned in a disastrous performance. Hirschhorn also clashed with Skilling's lead lawyer, Daniel Petrocelli, about whom to pick for the jury. Focus groups conducted by Hasuike showed that the defense's story-that no fraud had actually occurred-would be a hard sell. And during the trial, Lay's lead lawyer, Michael Ramsey, a prominent Houston criminal defense attorney, was hospitalized with heart problems.
Perhaps it would have taken a miracle for the defense team to pull out a victory for Lay and Skilling. After all, the pair's Enron-related sins had been explored everywhere from documentaries to The Daily Show. But the art of jury consulting is, to some extent, about achieving what seems impossible. Dimitrius and Hirschhorn knew that going in: She had helped O.J. Simpson win acquittal as a member of his "dream team," and Hirschhorn had played a major role in helping millionaire Robert Durst beat charges that he had murdered a neighbor. Such unexpected results are the reason that top consultants can command fees of up to $200,000 for a single case. But in Enron, the prosecution, with Dimitrius's help, engineered a strategy that ensured that there would be no divine intervention for the defense. As Petrocelli acknowledges, the defense "had very little room to maneuver."
Dimitrius, a 22-year veteran of the jury consulting business, and the prosecution began boxing in the defense on day one. She had been brought aboard in August 2004. The defense was just about to file a motion to move the trial out of Houston, an obvious move given the intensity of feeling in the city about Enron's collapse.
Dimitrius dug in. For two months she and her staff surveyed 400 Houston residents by phone, asking them basic questions about whether they had followed the case, how they felt about Lay and Skilling, and whether they thought the pair was innocent or guilty. To compare attitudes, they also surveyed 400 Phoenix residents. The team also pored over hundreds of magazine and newspaper articles published in Houston in an effort to counter the defense's argument that the news accounts about Enron had poisoned the jury pool.
The results were exactly what she was hoping for. Attitudes among the residents of both cities were similar: 63 percent of Houston respondents and 68 percent of those in Phoenix said they felt Lay and Skilling were either "definitely guilty" or "probably guilty." And of 297 news articles, they found several that painted the defendants in a positive light, and some that even accused the Houston Chronicle, which had aggressively covered the case, of being too soft on Lay. The prosecution filed a motion detailing Dimitrius's findings, and on January 19, 2005, Judge Lake denied the defense request to move the trial. "The court," Lake wrote, "is not persuaded that there exists a reasonable likelihood that the court will be unable to empanel an impartial jury despite widespread knowledge of the case." He concluded that while many people in Houston had negative feelings, the jury pool in a city of 2 million was so large, and the questions in the jury questionnaire developed by both sides were so thorough, that he could identify and remove any jurors with bias. Clearly, "it was a huge victory for the prosecution," Dimitrius says.
During the next ten months, Dimitrius conducted a more detailed community attitude survey of Houston residents-asking about their hobbies, religious beliefs, and views on Enron, among other things-to come up with a profile of the type of jurors that would be best for the prosecution. She also put together individual profiles of the people who had filled out juror questionnaires.
The 52-year-old Dimitrius was also trying to help prosecutors come up with a story that would resonate with jurors. But, because of the accounting jargon, she was having a hard time getting a clear picture of what Lay and Skilling had done wrong. At Dimitrius's urging, the prosecution hired a Los Angeles graphic artist, Juliet Huck, to create visual tools to help them articulate a more compelling story. In October 2005 Dimitrius and Huck met with a pair of lawyers from the U.S. Department of Justice's Enron Task Force, John Hueston and Robb Adkins. The men had flown to L.A. to work on a presentation to the jury that employed what Huck calls "visually persuasive storytelling."
The two women displayed a wall of illustrations-some artist's pencil sketches, some computer-generated graphics-with simple and bold statements: For instance, a Power Point slide with Ken Lay's photo under the headline "Lay Lies About Bad News." Huck walked through each graphic, and as she spoke, a clear storyline developed about where Lay and Skilling had committed crimes: how they hid losses from Enron's failing business units, shifted money from reserve accounts, sold Enron stock as the company headed toward bankruptcy, and lied to employees and stockholders. Some of the graphics were fine-tuned and used throughout the trial.
Prosecutors were trying to translate the story into words that a jury would grasp. "The case had to be reduced to what the defendants themselves actively did in a manner that would strike the average juror as criminally wrong," Hueston says. Dimitrius and Huck listened for sound bites that would grab jurors, and Hueston and Adkins jumped up several times to jot ideas on a board. Dimitrius was very familiar with the power of a few well-chosen words. She takes some of the credit for perhaps the most famous phrase to emerge from the O.J. trial: "If it doesn't fit, you must acquit." In this case, "when John said, 'This is what Lay did versus what he said,' that was my aha moment," Dimitrius says. "I knew that was going to be the hook people could understand."
Around the same time, Hirschhorn was sitting in his suburban Dallas office shuffling through 8-by-5 index cards he'd put together describing each of the 400 people who'd filled out a juror questionnaire. His system was simple: For those who would be acceptable jurors, he wrote an "okay" on the cards; for those he thought should be excluded, he wrote "strike"; if he needed more information, he'd jot a question mark, but would indicate whether he was leaning toward an "okay" or a "strike." He gave an "okay" to people who seemed to have a skeptical personality, because he felt they would question the government's case. He also okayed those who did not indicate strong feelings about Enron's media coverage or who had a strong business sense. Petrocelli and Hasuike were reviewing the same list, and e-mailed Hirschhorn their assessment. The results didn't bode well for a smooth jury selection process between Lay's camp and Skilling's. Of the 90 people Hirschhorn thought were definitely okay or who might be okay for the jury, every one had been on Petrocelli's list to strike.
Hirschhorn soon got a call from Ramsey, Lay's lawyer, asking him to come to Houston to meet with the defense teams. Over the next two months he made several trips to a war room that Skilling had set up across the street from the courthouse. Located on the top floor of the Bank of America building, the room was designed by Skilling to look like Enron's headquarters with lots of open space and walls fitted with floor-to-ceiling whiteboards.
The two defense teams had been forced together after Lake denied a motion to separate Lay's case from Skilling's. Skilling had put up $23 million for his legal fees and had a team of 14 lawyers from O'Melveny & Myers, six paralegals from O'Melveny's L.A. office, and one local criminal defense attorney. (O'Melveny in a July court filing said Skilling owes an additional $30 million-plus.) Lay's team had four lawyers, and he had given Ramsey a $2 million retainer. Over the next several months, Petrocelli and the O'Melveny lawyers would dominate, and their role would grow even larger after Ramsey was hospitalized during the trial.
Hirschhorn, however, is used to calling the shots in jury selection, and was not shy about pushing his point of view. He advocated picking jurors who felt intense animosity toward Lay and Skilling. According to what he heard in focus groups, Hirschhorn believed that these jurors would, after hearing the evidence, decide that they had misjudged Skilling and Lay and would vote for acquittal to make up for their initial views.
Petrocelli didn't like the idea, Hirschhorn says, and the two got into a shouting match when he pitched it. Petrocelli denies that there was a heated exchange, but acknowledges that he was reluctant to keep people in the jury pool who had very negative feelings about Lay and Skilling. Eventually, Petrocelli says, "we largely acceded" to Hirschhorn's point. But it took several meetings before the two teams agreed. As Chip Lewis, one of Lay's defense lawyers, puts it: "We all ultimately agreed on the strategy, but it took some cussin' and discussin'."
Hirschhorn says a tough case requires an unorthodox defense. That's how he helped win the 2003 acquittal of Durst, who had been charged with killing his neighbor and then chopping up the body. Hirschhorn says he believes Durst would have been convicted if the case had been handled in a conventional way. His strategy on that case was to pick a jury that would make a distinction between the slaying, which the defense argued was in self-defense, and the dismemberment. In Lay's case, Hirschhorn proposed that the lawyers try to get a hung jury by picking people with diametrically opposed political views on hot-button social issues, like abortion and gay rights. He felt it would be virtually impossible to get a jury in Houston to find the defendants not guilty on every charge, so the defense should pick jurors who couldn't agree on anything. But Ramsey and Petrocelli immediately rejected the idea, since neither wanted to try the case a second time.
Hirschhorn's aggressive approach isn't much of a surprise, given that he's a former litigator himself. He got into the con- sulting business in the early 1980s, through his first wife, Cathy
"Cat" Bennett, a pioneer in the field, who died of breast cancer in 1992. Jury consulting has clearly been good to Hirschhorn. On a June afternoon outside his Flower Mound, Texas, home, Hirschhorn is tooling through his gated neighborhood in a new golf cart. The homes in this development are built around a golf course designed with replicas of famous holes from around the country. The 50-year-old Hirschhorn wears a gold Rolex, drives a Mercedes, and can afford toys like the golf cart and a collection of sports memorabilia-baseballs signed by Mickey Mantle, Joe DiMaggio, and Willie Mays, and a golf ball signed by Tiger Woods.
Hirschhorn says the Lay case was only an average payday-$52,000. That's far below the $200,000 he scored in the Durst case. Lay's tighter budget meant that Hirschhorn had to forgo the kind of all-out consulting effort he had devoted to Durst. In that case, he spent more than 70 hours preparing Durst to testify. One of his staff members spent a month sitting in the trial to help out. And he conducted several mock trials and a created a shadow jury for Durst.
Hirschhorn wasn't even available to prepare Lay for his testimony in April. By then, Hirschhorn was in Puerto Rico working on a death penalty case. Lay's lawyers asked him to come back to the mainland to help prepare their client, but Hirschhorn says that he felt he couldn't walk away from a capital case. Hirschhorn now regrets his decision. Ramsey, who had spent months preparing to question Lay, was hospitalized after Lay took the stand, and another member of the defense team, George "Mac" Secrest, Jr., stepped in. During six days of testimony, Lay was combative and at one point was even testy with Secrest. "Ken," Hirschhorn says, "did not rise to the occasion."
Even if Lay had been at his most charming, he might have had trouble swaying the jury. The mock jurors had already told the defense that they were convinced that he was guilty during sessions held six and nine months before the trial. On both occasions, 20 Houston residents gathered in the morning to hear Lay's lawyers present prosecution and defense arguments. They were divided into two groups of ten and asked to reach a verdict. Each panelist then filled out a jury verdict form and was interviewed by Hirschhorn. The process was repeated in the afternoon with a new group of 20 residents. According to what the morning group had to say, the defense altered its arguments to see if it would change the result.
Of eight possible verdicts, seven were for conviction. "The biggest problem we were constantly fighting was their belief that the CEO of a corporation is the captain of the ship, and captains know everything," Hirschhorn says. So the lawyers tried to change the metaphor. They described Lay as akin to the secretary of the Navy. How could he possibly know where all of the ships in the Enron fleet were sailing? The defense also found that jurors were not buying their argument that Enron's chief financial officer, Andrew Fastow, was to blame for the company's fraud. So they softened their attack on Fastow. The changes helped produce the only positive result: One group of mock jurors deadlocked on a verdict.
The same story played out three months before the trial with Skilling's defense team. They took a slightly different approach. Forty-eight Houston residents were brought together to hear Skilling's lawyers present the case from both sides. They were then split into four groups of 12 to deliberate. Only one group voted to acquit, but that was enough for the defense team to decide that their arguments held water. Still, Hasuike, who ran the session, acknowledges that it was an uphill battle to convince the jurors there had been no fraud at Enron. "At a gut level," she says, their reaction was " 'you've got to be kidding.' "
By January 2006, the consultants had been working on the case for 18 months. They had compiled a painstaking analysis of the jurors' beliefs, backgrounds, and specific feelings about Enron. The jury pool had been winnowed to about 300 Houston residents, and each of them had responded to a 12-page questionnaire. Hirschhorn, Hasuike, and Dimitrius had expected to spend weeks watching lawyers grill prospective jurors, looking for any indications of excessive bias.
Then Judge Lake dropped a bomb. On December 16 he said that he was going to pick a jury in one day. Dimitrius's prep work for the prosecution gave it an edge. As Lake had noted in his ruling on the venue, the survey data she compiled had convinced him that he could weed out biased jurors. And he believed juror responses on the detailed jury questionnaire, which had been crafted by the three consultants, provided enough information that a lengthy voir dire would be unnecessary.
Anyone with even a passing knowledge of the case concluded that limiting voir dire was a major blow to the defense. Hasuike had been quietly working on profiles of the 300 people in the pool. When she heard about Lake's decision, "I was shocked," Hasuike says. "I kept asking Dan, 'How can it be?' " She says that in her 20 years in the business, most jury selections in criminal and civil cases have lasted two to three weeks. Petrocelli, who spent more than 20 days picking a jury in the civil case against O.J. Simpson, was also flabbergasted. "It was not a setting or process conducive to getting meaningful information in a few minutes," he says. The defense had requested time to question each juror at length in a sequestered courtroom. Instead, Lake called about 50 jurors to the bench one by one. Petrocelli, Ramsey, and prosecutor Clifford Stricklin each had a few minutes to ask follow-up questions. Petrocelli and Ramsey asked to disqualify several of the jurors. Lake excused a couple of them.
After voir dire, both sides were given 25 minutes to pick whom they would strike. The defense got 12 strikes, and the government got six. Each team huddled in separate jury rooms. Hirschhorn led the discussion for the defense, laying out his index cards on each juror. The defense lawyers wrote their choices of jurors to strike on a piece of paper and went back into the courtroom. Judge Lake took their list, as well as the prosecution's, and culled names from the pool, with neither side knowing whom the other had voted to strike. Lake then called up the first 12 people remaining in the pool-eight women and four men who would make up the final jury.
For Dimitrius and Hirschhorn, their role in the case was essentially over. But the 55-year-old Hasuike stayed on. Petrocelli had asked her to work with the defense team, advising them how to cross-examine witnesses and to stay on-theme. A slightly built woman with short, jet-black hair, she is reserved and soft-spoken. Unlike Dimitrius and Hirschhorn, who both make regular appearances on shows like Larry King Live and Good Morning America, Hasuike maintains a very low profile. She has never before granted an interview, and though pleasant and thoughtful during a discussion with a reporter, she declined to discuss any of her past cases or to sit for a photograph to accompany this story.
It's perhaps ironic then that of the three consultants, she was the one who was pushed into the spotlight during the trial. On the first day of Skilling's cross-examination, lead prosecutor Sean Berkowitz pointed her out to the jury. "Do you know who this woman is?" he asked Skilling. Skilling replied that she helped him articulate what he wanted to say. Berkowitz pressed him, asking if Hasuike had given him advice on how to persuade the jury. He then flashed Hasuike's resume on a large screen. It noted her expertise in jury selection, witness preparation, and "persuasive communication." Hasuike describes the moment as "heartbreaking": "I was worried that the jurors were going to get the impression that the way Jeff Skilling testified was because he was coached and had had a makeover."
Petrocelli had allowed Hasuike's resume to be admitted into the record on the condition that he would be allowed to ask prosecutors about their jury consultant. Although Petrocelli carried a copy of Dimitrius's 1998 book Reading People with him through the trial, he decided not to bring her up with the jury. Hasuike, meanwhile, sat on a bench next to the defense table monitoring the trial and passing notes to Petrocelli when she had questions about someone's testimony. She also advised him on how to handle cross-examination of witnesses who'd made plea deals with the government, particularly Enron treasurer Ben Glisan, Jr., who was serving a five-year prison sentence. The defense claimed that the witnesses had been pressured by the prosecution to admit to crimes they didn't commit, and Hasuike wanted the lawyers to draw out their personal stories to help prove the point.
Hasuike would leave the courtroom and retreat each night to the defense's war room. She stayed late into the evening, dispensing advice about how the lawyers and witnesses could be clearer. At one point she overheard Skilling giving a nearly incomprehensible explanation of Enron's business. "I don't understand a word you've just said," Hasuike said to Skilling. The two met with Petrocelli to try to hammer out a more lucid explanation.
Clearly, however, the coaching didn't work. The jury came back with its guilty verdicts on May 25, after deliberating for 34 hours. Skilling was convicted on 19 counts of conspiracy, securities fraud, making false statements to auditors, and insider trading. Lay was convicted on six counts of conspiracy, wire fraud, and securities fraud. Hasuike's focus groups had been on the money: The jury just didn't believe that Lay and Skilling were innocent. And they embraced the simple message that the prosecution had hammered on throughout the trial, that the case was about "lies and choices"-that Lay and Skilling told the public one thing, but did another in private.
Before and during the trial, Dimitrius gave the prosecutors feedback on the themes of their opening statement and closing argument. She advised Berkowitz to repeat the same words Hueston had emphasized in his opening to bring the case full circle. She and Huck, the graphic artist, also suggested that Berkowitz use an illustration that Huck had produced the night before as a prop: a large piece of cardboard, white on one side, with the word "truth" scrolled across it, and black on the opposite side, with the word "lies." In the courtroom, he flipped the board from one side to the other. It was the last image the jurors saw as he handed the case to them. "You get to decide whether they told truths or whether they told lies," he told the jury. "Black and white . . . you can't buy justice. You have to earn it." The message resonated with jurors. "I felt they did lie," says juror Dana Fernandez, a Harris County court clerk. "I feel when you're involved with other people's lives and money, you have to be honest with them."
An hour before the verdict came down, Hirschhorn, in a phone conversation, voiced some hope for an acquittal. It was day six of the jury's deliberations, and the delay seemed to him like a positive sign. "I'm proud of them. I think they can do it," he said of the jury. But he acknowledged, "If those people come out and say 'not guilty,' this would be the most shocking verdict since O.J." A few weeks later he recounted what he thinks went wrong in the trial. In addition to Lay's testimony, Hirschhorn says, the defense was unable to make an effective case because witnesses refused to testify out of fear of being prosecuted. The lawyers argued that Enron collapsed as a result of a run on the bank by financial institutions after Fastow's efforts to hide Enron's losses came to light. "I don't think we put on enough evidence to show it," Hirschhorn says. Like Hasuike, Hirschhorn believes voir dire was a big problem, and, of course, having the trial in Houston was a major burden for the defense. "Factually, you can win this case. It was the venue," he says.
The case has taken several turns since the verdict. Lay's lawyers believe his death in July voids the verdict against him, and Petrocelli is continuing to battle on Skilling's behalf. In June he filed a motion asking the court to set aside the verdict or grant Skilling a new trial on the grounds that the evidence presented at trial was insufficient to convict him. Not surprisingly, Judge Lake denied the request. Petrocelli has also asked Lake to reconsider his ruling prohibiting the prosecution and defense from contacting the jurors to ask them what evidence and arguments they found persuasive. He will also be filing an appeal after Lake sentences Skilling in October. Petrocelli rattles off several grounds for a new trial, including the judge's denial of a venue change and the limited voir dire.
As for the jury consultants, the Enron case is old news. True to form, Petrocelli's consultant, Hasuike, won't discuss her next case. Hirschhorn says he has a couple high-profile cases in the hopper (though he says he can't discuss them because he hasn't yet made an appearance in court and doesn't want to tip the other side to his involvement). As for Dimitrius, she'll be putting her people-reading skills to the test again when she debuts as a commentator on the next season of ABC's Dancing with the Stars. One of the show's producers read Reading People and invited her to appear on the show to read body language and predict how the stars will do in the competition.
Dimitrius is also taking on a second career of sorts. She and her husband, Randy, who is also a consultant at her firm, recently became part- owners of an L.A. helicopter charter business. She's now training for a pilot's license and can be seen landing a Bell JetRanger helicopter at LAX several days a week. It's a challenge to control the aircraft, since the slightest movement of the gears can change a helicopter's direction or turn it upside down. "You have to be 100 percent focused on what you're doing," she says. As the Enron trial showed, she can handle a little turbulence.
Still, the defense team could almost hear the jailhouse door slamming in the distance. Prosecutors had appeared to be on the verge of a slam dunk. But things weren't going so well for them, either. The Enron case had given prosecutors an embarrassment of riches, but they were struggling with a story that only an accountant could love. Was a working-class Houston juror going to relate to a tale of mark-to-market write-downs and revenue recognition? No one was going to confuse this case with a Grisham thriller, and the prosecution team plotted with their jury consultants to keep from losing a sure thing.
By now, everyone knows that Lay and Skilling were convicted on May 25 of multiple counts of conspiracy and securities fraud, that Lay died, and that Skilling is planning to fight on with an appeal. But in the months leading up to the trial, the outcome appeared much less certain to both sides. Their focus was on getting the best jury they could and on crafting a convincing and compelling story. They brought on three veteran jury consultants to help them battle for an advantage: Jo-Ellan Dimitrius, for the prosecution; Robert Hirschhorn, who worked for Lay; and Reiko Hasuike, who advised Skilling.
Over the course of five months, The American Attorney Magazine talked with the three consultants, who shared the strategies they employed in the Enron case. The consultants concur on one thing in particular: that early victories by the prosecution on jury issues were pivotal in getting a conviction. "The venue and the jury selection were the only things that could have made the difference [for the defense]," Hasuike says. Dimitrius was key in helping the prosecution score wins on both points-getting Judge Simeon Lake III to keep the trial in Houston and making it easy for him to limit voir dire.
Meanwhile, everything that could go wrong for the defense team did. It was stuck with a jury from Enron's hometown and given almost no time to question prospective jurors. There were problems behind the scenes, as well: Hirschhorn wasn't able to coach Lay prior to his testimony-and the Enron chairman turned in a disastrous performance. Hirschhorn also clashed with Skilling's lead lawyer, Daniel Petrocelli, about whom to pick for the jury. Focus groups conducted by Hasuike showed that the defense's story-that no fraud had actually occurred-would be a hard sell. And during the trial, Lay's lead lawyer, Michael Ramsey, a prominent Houston criminal defense attorney, was hospitalized with heart problems.
Perhaps it would have taken a miracle for the defense team to pull out a victory for Lay and Skilling. After all, the pair's Enron-related sins had been explored everywhere from documentaries to The Daily Show. But the art of jury consulting is, to some extent, about achieving what seems impossible. Dimitrius and Hirschhorn knew that going in: She had helped O.J. Simpson win acquittal as a member of his "dream team," and Hirschhorn had played a major role in helping millionaire Robert Durst beat charges that he had murdered a neighbor. Such unexpected results are the reason that top consultants can command fees of up to $200,000 for a single case. But in Enron, the prosecution, with Dimitrius's help, engineered a strategy that ensured that there would be no divine intervention for the defense. As Petrocelli acknowledges, the defense "had very little room to maneuver."
Dimitrius, a 22-year veteran of the jury consulting business, and the prosecution began boxing in the defense on day one. She had been brought aboard in August 2004. The defense was just about to file a motion to move the trial out of Houston, an obvious move given the intensity of feeling in the city about Enron's collapse.
Dimitrius dug in. For two months she and her staff surveyed 400 Houston residents by phone, asking them basic questions about whether they had followed the case, how they felt about Lay and Skilling, and whether they thought the pair was innocent or guilty. To compare attitudes, they also surveyed 400 Phoenix residents. The team also pored over hundreds of magazine and newspaper articles published in Houston in an effort to counter the defense's argument that the news accounts about Enron had poisoned the jury pool.
The results were exactly what she was hoping for. Attitudes among the residents of both cities were similar: 63 percent of Houston respondents and 68 percent of those in Phoenix said they felt Lay and Skilling were either "definitely guilty" or "probably guilty." And of 297 news articles, they found several that painted the defendants in a positive light, and some that even accused the Houston Chronicle, which had aggressively covered the case, of being too soft on Lay. The prosecution filed a motion detailing Dimitrius's findings, and on January 19, 2005, Judge Lake denied the defense request to move the trial. "The court," Lake wrote, "is not persuaded that there exists a reasonable likelihood that the court will be unable to empanel an impartial jury despite widespread knowledge of the case." He concluded that while many people in Houston had negative feelings, the jury pool in a city of 2 million was so large, and the questions in the jury questionnaire developed by both sides were so thorough, that he could identify and remove any jurors with bias. Clearly, "it was a huge victory for the prosecution," Dimitrius says.
During the next ten months, Dimitrius conducted a more detailed community attitude survey of Houston residents-asking about their hobbies, religious beliefs, and views on Enron, among other things-to come up with a profile of the type of jurors that would be best for the prosecution. She also put together individual profiles of the people who had filled out juror questionnaires.
The 52-year-old Dimitrius was also trying to help prosecutors come up with a story that would resonate with jurors. But, because of the accounting jargon, she was having a hard time getting a clear picture of what Lay and Skilling had done wrong. At Dimitrius's urging, the prosecution hired a Los Angeles graphic artist, Juliet Huck, to create visual tools to help them articulate a more compelling story. In October 2005 Dimitrius and Huck met with a pair of lawyers from the U.S. Department of Justice's Enron Task Force, John Hueston and Robb Adkins. The men had flown to L.A. to work on a presentation to the jury that employed what Huck calls "visually persuasive storytelling."
The two women displayed a wall of illustrations-some artist's pencil sketches, some computer-generated graphics-with simple and bold statements: For instance, a Power Point slide with Ken Lay's photo under the headline "Lay Lies About Bad News." Huck walked through each graphic, and as she spoke, a clear storyline developed about where Lay and Skilling had committed crimes: how they hid losses from Enron's failing business units, shifted money from reserve accounts, sold Enron stock as the company headed toward bankruptcy, and lied to employees and stockholders. Some of the graphics were fine-tuned and used throughout the trial.
Prosecutors were trying to translate the story into words that a jury would grasp. "The case had to be reduced to what the defendants themselves actively did in a manner that would strike the average juror as criminally wrong," Hueston says. Dimitrius and Huck listened for sound bites that would grab jurors, and Hueston and Adkins jumped up several times to jot ideas on a board. Dimitrius was very familiar with the power of a few well-chosen words. She takes some of the credit for perhaps the most famous phrase to emerge from the O.J. trial: "If it doesn't fit, you must acquit." In this case, "when John said, 'This is what Lay did versus what he said,' that was my aha moment," Dimitrius says. "I knew that was going to be the hook people could understand."
Around the same time, Hirschhorn was sitting in his suburban Dallas office shuffling through 8-by-5 index cards he'd put together describing each of the 400 people who'd filled out a juror questionnaire. His system was simple: For those who would be acceptable jurors, he wrote an "okay" on the cards; for those he thought should be excluded, he wrote "strike"; if he needed more information, he'd jot a question mark, but would indicate whether he was leaning toward an "okay" or a "strike." He gave an "okay" to people who seemed to have a skeptical personality, because he felt they would question the government's case. He also okayed those who did not indicate strong feelings about Enron's media coverage or who had a strong business sense. Petrocelli and Hasuike were reviewing the same list, and e-mailed Hirschhorn their assessment. The results didn't bode well for a smooth jury selection process between Lay's camp and Skilling's. Of the 90 people Hirschhorn thought were definitely okay or who might be okay for the jury, every one had been on Petrocelli's list to strike.
Hirschhorn soon got a call from Ramsey, Lay's lawyer, asking him to come to Houston to meet with the defense teams. Over the next two months he made several trips to a war room that Skilling had set up across the street from the courthouse. Located on the top floor of the Bank of America building, the room was designed by Skilling to look like Enron's headquarters with lots of open space and walls fitted with floor-to-ceiling whiteboards.
The two defense teams had been forced together after Lake denied a motion to separate Lay's case from Skilling's. Skilling had put up $23 million for his legal fees and had a team of 14 lawyers from O'Melveny & Myers, six paralegals from O'Melveny's L.A. office, and one local criminal defense attorney. (O'Melveny in a July court filing said Skilling owes an additional $30 million-plus.) Lay's team had four lawyers, and he had given Ramsey a $2 million retainer. Over the next several months, Petrocelli and the O'Melveny lawyers would dominate, and their role would grow even larger after Ramsey was hospitalized during the trial.
Hirschhorn, however, is used to calling the shots in jury selection, and was not shy about pushing his point of view. He advocated picking jurors who felt intense animosity toward Lay and Skilling. According to what he heard in focus groups, Hirschhorn believed that these jurors would, after hearing the evidence, decide that they had misjudged Skilling and Lay and would vote for acquittal to make up for their initial views.
Petrocelli didn't like the idea, Hirschhorn says, and the two got into a shouting match when he pitched it. Petrocelli denies that there was a heated exchange, but acknowledges that he was reluctant to keep people in the jury pool who had very negative feelings about Lay and Skilling. Eventually, Petrocelli says, "we largely acceded" to Hirschhorn's point. But it took several meetings before the two teams agreed. As Chip Lewis, one of Lay's defense lawyers, puts it: "We all ultimately agreed on the strategy, but it took some cussin' and discussin'."
Hirschhorn says a tough case requires an unorthodox defense. That's how he helped win the 2003 acquittal of Durst, who had been charged with killing his neighbor and then chopping up the body. Hirschhorn says he believes Durst would have been convicted if the case had been handled in a conventional way. His strategy on that case was to pick a jury that would make a distinction between the slaying, which the defense argued was in self-defense, and the dismemberment. In Lay's case, Hirschhorn proposed that the lawyers try to get a hung jury by picking people with diametrically opposed political views on hot-button social issues, like abortion and gay rights. He felt it would be virtually impossible to get a jury in Houston to find the defendants not guilty on every charge, so the defense should pick jurors who couldn't agree on anything. But Ramsey and Petrocelli immediately rejected the idea, since neither wanted to try the case a second time.
Hirschhorn's aggressive approach isn't much of a surprise, given that he's a former litigator himself. He got into the con- sulting business in the early 1980s, through his first wife, Cathy
"Cat" Bennett, a pioneer in the field, who died of breast cancer in 1992. Jury consulting has clearly been good to Hirschhorn. On a June afternoon outside his Flower Mound, Texas, home, Hirschhorn is tooling through his gated neighborhood in a new golf cart. The homes in this development are built around a golf course designed with replicas of famous holes from around the country. The 50-year-old Hirschhorn wears a gold Rolex, drives a Mercedes, and can afford toys like the golf cart and a collection of sports memorabilia-baseballs signed by Mickey Mantle, Joe DiMaggio, and Willie Mays, and a golf ball signed by Tiger Woods.
Hirschhorn says the Lay case was only an average payday-$52,000. That's far below the $200,000 he scored in the Durst case. Lay's tighter budget meant that Hirschhorn had to forgo the kind of all-out consulting effort he had devoted to Durst. In that case, he spent more than 70 hours preparing Durst to testify. One of his staff members spent a month sitting in the trial to help out. And he conducted several mock trials and a created a shadow jury for Durst.
Hirschhorn wasn't even available to prepare Lay for his testimony in April. By then, Hirschhorn was in Puerto Rico working on a death penalty case. Lay's lawyers asked him to come back to the mainland to help prepare their client, but Hirschhorn says that he felt he couldn't walk away from a capital case. Hirschhorn now regrets his decision. Ramsey, who had spent months preparing to question Lay, was hospitalized after Lay took the stand, and another member of the defense team, George "Mac" Secrest, Jr., stepped in. During six days of testimony, Lay was combative and at one point was even testy with Secrest. "Ken," Hirschhorn says, "did not rise to the occasion."
Even if Lay had been at his most charming, he might have had trouble swaying the jury. The mock jurors had already told the defense that they were convinced that he was guilty during sessions held six and nine months before the trial. On both occasions, 20 Houston residents gathered in the morning to hear Lay's lawyers present prosecution and defense arguments. They were divided into two groups of ten and asked to reach a verdict. Each panelist then filled out a jury verdict form and was interviewed by Hirschhorn. The process was repeated in the afternoon with a new group of 20 residents. According to what the morning group had to say, the defense altered its arguments to see if it would change the result.
Of eight possible verdicts, seven were for conviction. "The biggest problem we were constantly fighting was their belief that the CEO of a corporation is the captain of the ship, and captains know everything," Hirschhorn says. So the lawyers tried to change the metaphor. They described Lay as akin to the secretary of the Navy. How could he possibly know where all of the ships in the Enron fleet were sailing? The defense also found that jurors were not buying their argument that Enron's chief financial officer, Andrew Fastow, was to blame for the company's fraud. So they softened their attack on Fastow. The changes helped produce the only positive result: One group of mock jurors deadlocked on a verdict.
The same story played out three months before the trial with Skilling's defense team. They took a slightly different approach. Forty-eight Houston residents were brought together to hear Skilling's lawyers present the case from both sides. They were then split into four groups of 12 to deliberate. Only one group voted to acquit, but that was enough for the defense team to decide that their arguments held water. Still, Hasuike, who ran the session, acknowledges that it was an uphill battle to convince the jurors there had been no fraud at Enron. "At a gut level," she says, their reaction was " 'you've got to be kidding.' "
By January 2006, the consultants had been working on the case for 18 months. They had compiled a painstaking analysis of the jurors' beliefs, backgrounds, and specific feelings about Enron. The jury pool had been winnowed to about 300 Houston residents, and each of them had responded to a 12-page questionnaire. Hirschhorn, Hasuike, and Dimitrius had expected to spend weeks watching lawyers grill prospective jurors, looking for any indications of excessive bias.
Then Judge Lake dropped a bomb. On December 16 he said that he was going to pick a jury in one day. Dimitrius's prep work for the prosecution gave it an edge. As Lake had noted in his ruling on the venue, the survey data she compiled had convinced him that he could weed out biased jurors. And he believed juror responses on the detailed jury questionnaire, which had been crafted by the three consultants, provided enough information that a lengthy voir dire would be unnecessary.
Anyone with even a passing knowledge of the case concluded that limiting voir dire was a major blow to the defense. Hasuike had been quietly working on profiles of the 300 people in the pool. When she heard about Lake's decision, "I was shocked," Hasuike says. "I kept asking Dan, 'How can it be?' " She says that in her 20 years in the business, most jury selections in criminal and civil cases have lasted two to three weeks. Petrocelli, who spent more than 20 days picking a jury in the civil case against O.J. Simpson, was also flabbergasted. "It was not a setting or process conducive to getting meaningful information in a few minutes," he says. The defense had requested time to question each juror at length in a sequestered courtroom. Instead, Lake called about 50 jurors to the bench one by one. Petrocelli, Ramsey, and prosecutor Clifford Stricklin each had a few minutes to ask follow-up questions. Petrocelli and Ramsey asked to disqualify several of the jurors. Lake excused a couple of them.
After voir dire, both sides were given 25 minutes to pick whom they would strike. The defense got 12 strikes, and the government got six. Each team huddled in separate jury rooms. Hirschhorn led the discussion for the defense, laying out his index cards on each juror. The defense lawyers wrote their choices of jurors to strike on a piece of paper and went back into the courtroom. Judge Lake took their list, as well as the prosecution's, and culled names from the pool, with neither side knowing whom the other had voted to strike. Lake then called up the first 12 people remaining in the pool-eight women and four men who would make up the final jury.
For Dimitrius and Hirschhorn, their role in the case was essentially over. But the 55-year-old Hasuike stayed on. Petrocelli had asked her to work with the defense team, advising them how to cross-examine witnesses and to stay on-theme. A slightly built woman with short, jet-black hair, she is reserved and soft-spoken. Unlike Dimitrius and Hirschhorn, who both make regular appearances on shows like Larry King Live and Good Morning America, Hasuike maintains a very low profile. She has never before granted an interview, and though pleasant and thoughtful during a discussion with a reporter, she declined to discuss any of her past cases or to sit for a photograph to accompany this story.
It's perhaps ironic then that of the three consultants, she was the one who was pushed into the spotlight during the trial. On the first day of Skilling's cross-examination, lead prosecutor Sean Berkowitz pointed her out to the jury. "Do you know who this woman is?" he asked Skilling. Skilling replied that she helped him articulate what he wanted to say. Berkowitz pressed him, asking if Hasuike had given him advice on how to persuade the jury. He then flashed Hasuike's resume on a large screen. It noted her expertise in jury selection, witness preparation, and "persuasive communication." Hasuike describes the moment as "heartbreaking": "I was worried that the jurors were going to get the impression that the way Jeff Skilling testified was because he was coached and had had a makeover."
Petrocelli had allowed Hasuike's resume to be admitted into the record on the condition that he would be allowed to ask prosecutors about their jury consultant. Although Petrocelli carried a copy of Dimitrius's 1998 book Reading People with him through the trial, he decided not to bring her up with the jury. Hasuike, meanwhile, sat on a bench next to the defense table monitoring the trial and passing notes to Petrocelli when she had questions about someone's testimony. She also advised him on how to handle cross-examination of witnesses who'd made plea deals with the government, particularly Enron treasurer Ben Glisan, Jr., who was serving a five-year prison sentence. The defense claimed that the witnesses had been pressured by the prosecution to admit to crimes they didn't commit, and Hasuike wanted the lawyers to draw out their personal stories to help prove the point.
Hasuike would leave the courtroom and retreat each night to the defense's war room. She stayed late into the evening, dispensing advice about how the lawyers and witnesses could be clearer. At one point she overheard Skilling giving a nearly incomprehensible explanation of Enron's business. "I don't understand a word you've just said," Hasuike said to Skilling. The two met with Petrocelli to try to hammer out a more lucid explanation.
Clearly, however, the coaching didn't work. The jury came back with its guilty verdicts on May 25, after deliberating for 34 hours. Skilling was convicted on 19 counts of conspiracy, securities fraud, making false statements to auditors, and insider trading. Lay was convicted on six counts of conspiracy, wire fraud, and securities fraud. Hasuike's focus groups had been on the money: The jury just didn't believe that Lay and Skilling were innocent. And they embraced the simple message that the prosecution had hammered on throughout the trial, that the case was about "lies and choices"-that Lay and Skilling told the public one thing, but did another in private.
Before and during the trial, Dimitrius gave the prosecutors feedback on the themes of their opening statement and closing argument. She advised Berkowitz to repeat the same words Hueston had emphasized in his opening to bring the case full circle. She and Huck, the graphic artist, also suggested that Berkowitz use an illustration that Huck had produced the night before as a prop: a large piece of cardboard, white on one side, with the word "truth" scrolled across it, and black on the opposite side, with the word "lies." In the courtroom, he flipped the board from one side to the other. It was the last image the jurors saw as he handed the case to them. "You get to decide whether they told truths or whether they told lies," he told the jury. "Black and white . . . you can't buy justice. You have to earn it." The message resonated with jurors. "I felt they did lie," says juror Dana Fernandez, a Harris County court clerk. "I feel when you're involved with other people's lives and money, you have to be honest with them."
An hour before the verdict came down, Hirschhorn, in a phone conversation, voiced some hope for an acquittal. It was day six of the jury's deliberations, and the delay seemed to him like a positive sign. "I'm proud of them. I think they can do it," he said of the jury. But he acknowledged, "If those people come out and say 'not guilty,' this would be the most shocking verdict since O.J." A few weeks later he recounted what he thinks went wrong in the trial. In addition to Lay's testimony, Hirschhorn says, the defense was unable to make an effective case because witnesses refused to testify out of fear of being prosecuted. The lawyers argued that Enron collapsed as a result of a run on the bank by financial institutions after Fastow's efforts to hide Enron's losses came to light. "I don't think we put on enough evidence to show it," Hirschhorn says. Like Hasuike, Hirschhorn believes voir dire was a big problem, and, of course, having the trial in Houston was a major burden for the defense. "Factually, you can win this case. It was the venue," he says.
The case has taken several turns since the verdict. Lay's lawyers believe his death in July voids the verdict against him, and Petrocelli is continuing to battle on Skilling's behalf. In June he filed a motion asking the court to set aside the verdict or grant Skilling a new trial on the grounds that the evidence presented at trial was insufficient to convict him. Not surprisingly, Judge Lake denied the request. Petrocelli has also asked Lake to reconsider his ruling prohibiting the prosecution and defense from contacting the jurors to ask them what evidence and arguments they found persuasive. He will also be filing an appeal after Lake sentences Skilling in October. Petrocelli rattles off several grounds for a new trial, including the judge's denial of a venue change and the limited voir dire.
As for the jury consultants, the Enron case is old news. True to form, Petrocelli's consultant, Hasuike, won't discuss her next case. Hirschhorn says he has a couple high-profile cases in the hopper (though he says he can't discuss them because he hasn't yet made an appearance in court and doesn't want to tip the other side to his involvement). As for Dimitrius, she'll be putting her people-reading skills to the test again when she debuts as a commentator on the next season of ABC's Dancing with the Stars. One of the show's producers read Reading People and invited her to appear on the show to read body language and predict how the stars will do in the competition.
Dimitrius is also taking on a second career of sorts. She and her husband, Randy, who is also a consultant at her firm, recently became part- owners of an L.A. helicopter charter business. She's now training for a pilot's license and can be seen landing a Bell JetRanger helicopter at LAX several days a week. It's a challenge to control the aircraft, since the slightest movement of the gears can change a helicopter's direction or turn it upside down. "You have to be 100 percent focused on what you're doing," she says. As the Enron trial showed, she can handle a little turbulence.
Saturday, September 09, 2006
Law firms say they don't like using contract attorneys. Yet, more and more, they're hiring hundreds of temps at a time
The $16 billion merger of SBC Communications Inc. and AT&T Corp. represented a high-water mark in the legal cattle call known as document production. Some 600 contract attorneys converged in Washington, D.C., to work on the SBC side of the deal, where the telecom giant's antitrust counsel, Crowell & Moring and Arnold & Porter, ran a massive antitrust regulatory review. A few hundred more in Chicago labored for Sidley Austin at AT&T's behest.
Luring the contract attorneys-also called temporary attorneys-was the promise of several months' document review work at $32 an hour plus overtime, potentially worth $50,000 over the four-month review. But the near-chaotic conditions the temps found was more than some bargained for. Jammed along narrow tables in a leased space at Fifteenth and M streets, the 600 temps in Washington coded documents for anything related to telecom competition for later review by Crowell's full-time attorneys. They fought exhaustion to punch in as many hours as possible. Many showed up at 7 a.m. (breakfast buffet) and soldiered on till midnight (lunch and dinner provided). One temp from out of town lived in her car, taking showers at her gym. One slow day, a senior Crowell partner was given a tour. "The floor managers told us, 'Look busy,' " recalls a temp who worked on the case. "So we all stared at our screens, tap-tapping the keyboards randomly."
Despite the circuslike atmosphere, Crowell lead antitrust partner Jeane Thomas says the matter went smoothly and that temporary lawyers were well supervised. The work was among the most complex ever reported on an antitrust regulatory review, so "I'm not surprised to hear that someone said it was hard to keep up with the work," she says. In the end, the amount of paper processed by the lawyers was staggering. "You all have reviewed nearly 3 million pages today," an antitrust partner announced one evening. Temps ultimately combed through more than 100 million electronic pages.
Crowell's use of an army of temps for document review is hardly unique. In an age when law firms spend huge amounts of money on marketing efforts to build their brands, they also increasingly rely on off-label, generic lawyers, most of whose resumes would never get a second glance for an associate-track job. Law firms do it because they have to: Clients are pressing counsel to trim costs, and labor-intensive document reviews are a natural target. Firms, for their part, increasingly find they can't handle the work alone anyway-even if they wanted to-as each new class action or securities fraud investigation brings on a landslide of electronic documents. As a bonus, firms can bill out at higher attorney rates the kind of work that a decade ago might have been assigned to paralegals.
This year, for the first time, The American Lawyer surveyed the nation's largest 200 firms on how they use temps, how they pay for staffing services, and how they bill out temp work. What we found was hardly surprising: Most firms didn't want to talk about it. Just 42 firms responded, many only on condition that their firm not be named in relation to specific fee and rate information. Of the 57 percent that reported using temps, more than three-quarters said they relied on them for more matters in 2005 than in the previous year. Our findings echo those of our sister publication, The National Law Journal. The NLJ 250 survey of the nation's 250 largest firms found the number of temps reported doubled between 2002 and 2003, then increased 48 percent from 2003 to 2004, and by 13 percent between 2004 and 2005. (In 2002, two-thirds of firms surveyed answered the question; in 2003, 2004, and 2005, at least three-quarters of firms answered it.)
Temp hiring may cost clients less, but it has meant big money for the staffing industry, which has found recruits in each year's crop of unemployed, indebted law grads. It has also meant a potential new revenue stream for law firms. Firms like Howrey, with its heavy focus on big-ticket, document-intensive antitrust and litigation work, have learned to turn document review into a new profit center. "The fact is, the work is very lucrative," says consultant Peter Zeughauser, founder of Newport Beach, California-based Zeughauser Group. Even with the relatively modest profit margins on temp labor, he says, "that's what leverage is made of."
Still, many firms balk at hiring temps, wary of a workforce with no firm loyalty or track record. They are also concerned about being perceived as running a legal sweatshop, with page count in place of shirtwaists. Some, like Skadden, Arps, Slate, Meagher & Flom and Sullivan & Cromwell, have created a new category of full-time attorneys outside the associate track to handle document review in place of temps. Still others, like Howrey; Paul, Weiss, Rifkind, Wharton & Garrison; and LeBoeuf, Lamb, Greene & MacRae, use staff attorneys-often former temps themselves-to provide closer supervision of the temp labor pool.
The discomfort that some partners and associates express about temporary attorneys is mirrored by the scorn that many temps express for their employers. Shoehorned into awkward work spaces and virtually unacknowledged as professionals, many complain in chat rooms and blogs about being treated even worse than junior associates-and with no prospect for advancement. "In a perfect world, you'd want your associates to do the work," says LeBoeuf chairman Steven Davis. "But even the biggest firms don't have the resources anymore. The question becomes, how do we do it with care and credibility?"
Temporary attorneys first began to be hired in numbers approaching battalion level several years ago, to deal with new judicial and regulatory expectations. In 1990, most corporate documents were retained as paper; by 2000, 80-90 percent of documents were maintained electronically, but judges remained lenient about electronic data production until 2001-02. Document discovery surged after 2001, as regulators ordered companies, banks, and accounting firms to retain all electronic communications. Regulators and prosecutors demanded complete e-mail records in high-profile cases, such as the Enron Corp./Arthur Andersen LLP litigation, and judges began sanctioning companies for failing to retain or produce the records.
Meanwhile, a spike in M&A transactions engendered vastly more antitrust document review. The number of such transactions nearly doubled between 1995 and 2000, triggering the U.S. Department of Justice to issue more formal antitrust review requests, known as second requests. In the 1990s, "you might end up in a huge matter producing thousands of boxes and millions of pages," recalls Thomas Fina, a Howrey antitrust partner. Nowadays, with electronic data recovery, "you'd have to produce tens or hundreds of millions of pages of documents" on a large matter, Fina says.
Temp hiring has increased fastest in New York and Washington, D.C., because of the concentration of document-intensive white-collar criminal defense, securities litigation, and regulatory matters there. That hiring has been a factor in the double-digit growth in the legal staffing industry, which grew from an estimated $800 million in 2000 to an estimated $1.5 billion in 2006, according to Los Altos, California-based Staffing Industry Analysts Inc., a private industry tracking group. While that number also includes revenue from placing full-time lawyers, paralegals, and legal secretaries, legal staffing agency executives say the fastest-growing part of their business has been in temporary lawyer hires.
Just how much of the money goes to law firms? It varies. The American Bar Association's committee on ethics and professional responsibility concluded in a formal 2000 opinion that firms could bill out temporary attorneys at triple the rate they pay the agency. In our survey, though, only a handful of firms using temps reported triple-billing; a third reported a 0-25 percent markup over the rate the firm pays its agencies, and another third reported a 26-100 percent markup.
Still, the dollars can add up. At an average markup of 100 percent, 100 temporary lawyers hired for four months (the average length of time for an antitrust regulatory review) could generate roughly a $5 million profit for the firm. "Any law firm that doesn't make money off of document review is making a mistake," says Phillips Geraghty, a cofounder and managing director of New York-based legal staffing agency De Novo Legal, LLC.
That the vast majority of firms declined to disclose their temp hiring and billing practices is no surprise, says Zeughauser. "There is an unfounded concern about tarnishing the brand," he says. "The bigger issue is the amount of money that is being made and the uneven billing practices." Firms are concerned that, if clients knew their profit margins, "they'd insist that the work be passed through at cost."
The staffing industry, for its part, follows the law firm business model writ small: For every lawyer hired out, the agency collects roughly 70-80 percent more than what it pays the temp. (Document reviewers get $21-$35 an hour for entry-level work in New York and Washington, D.C., according to agencies and temporary attorneys.) The same four-month document review employing 100 temps may spin off $2-3 million to the agencies.
The relatively easy money has sparked a gold rush of sorts among legal recruiters, which have doubled in number in many major cities in the past five years. Workhorse temps are guarded like trade secrets, says one recruiter; the business of winning over firm clients "is very competitive," says Jodi Feinman, vice president of Legal Placements, Inc., a D.C.-based independent legal recruiter. But with the pie growing fast, nine staffing agencies interviewed for this story-five in D.C. and four in New York-all reported double-digit revenue increases each of the last few years, and all expected similar growth this year [see "Short-Term Staffing, Big-Time Profits"].
Despite potential financial gains, not every firm is getting on board. Just over half of NLJ 250 firms reported hiring temporary attorneys in 2005. Many of those firms use temps only sparingly. "There's a tremendous unease with the concept of hiring temporary attorneys," says LeBoeuf, Lamb's Davis, whose firm hired between a dozen and two dozen such attorneys for each of a handful of litigation matters last year. "You have to use them, but you don't want to."
Ask any litigator where that unease comes from, and he or she will point to the case of the Brown & Williamson Tobacco Corporation "smoking gun" documents. In the early 1990s, Merrill Williams, a paralegal at Louisville-based Wyatt, Tarrant & Combs, allegedly copied and gradually carried off about 4,000 pages of internal company documents, sneaking them out under his shirt-and providing key ammunition to prosecutors and plaintiffs attorneys when he leaked them in 1994. (Williams was sued-unsuccessfully-by the tobacco industry, seeking return of the documents.)
The discomfort level rises a few notches when firms are forced to use space provided by the agencies. "If you're in the staffing agency's office using their copy machines, that doesn't sit well with me," says LeBoeuf, Lamb executive director Stephen DiCarmine. "What if [another firm's] lawyer comes in the next day and finds one of your client's documents sitting there?" (None of the six law firms interviewed for this story reported any security breaches.)
The desire to keep the work on-site has resulted in some grim environments for temps. Working conditions at one New York firm are "crowded, dark, and [with] only a small bathroom," wrote one temp in an anonymous online posting in July. Other firms, like Sullivan & Cromwell and Cadwalader, Wickersham & Taft, generally receive more positive reviews for providing good pay, a decent working environment, and an ambience of respect. "It's very hit-or-miss," says a New York temp attorney, speaking of how firms treat temps. "The law firm can really do whatever they want. That's really the problem, because the temps have no choice but to take whatever [job] comes along."
Temp work is a professional catch-22: "We are told not to put 'contract attorney' on our resumes, otherwise you are looked down on," said one D.C.-area temp who has been looking for a full-time job for years. And most firms don't permit temps to make calls, surf the Web, or e-mail on the job, an obstacle to finding permanent employment.
Meanwhile, the money is good enough to make it hard to leave. Temps can make twice the $40,000-$50,000 offered to entry-level associates in New York and Washington at small firms or insurance defense firms. And they don't have to pass the bar to do it-though most firms we heard from required temporary attorneys to be licensed in some state.
The pay is unpredictable, however. In dozens of interviews, e-mails, and publicly posted blogs, temp lawyers complain that firms and agencies routinely make empty promises about a project's duration. Temps gripe that they can be dropped from the work rolls with no advance warning. That's what happened at Crowell during the SBC matter after a sudden drop in work eight weeks into what was supposed to be a four-month assignment. As the lawyers exited the lunchroom, they had to file past an agency manager with a checklist. "If she took your badge, that meant you were out," a Crowell temp recalls. "All she said [was], 'Thank you for your services.' "
But if temp attorneys jump ship for other, better-paying or longer-term jobs, they risk being blacklisted. "There are agencies and firms that have a database for attendance, for loyalty," confirms one legal staffing recruitment executive. "People can burn bridges with agencies and law firms. A lot of [contract attorneys] don't realize that."
Looking for alternatives to temps, some firms have created yet another layer of non-partnership-track lawyers, variously known as staff attorneys, document coordinators, and litigation analysts. In fact, in our survey, half the firms using temps also employed staff attorneys, many of them former temps themselves.
Staff attorneys can prove highly profitable in the leverage game. LeBoeuf, Lamb's five staff attorneys are graduates of law schools that range from first to third tier, and they are paid slightly more than half the salary of first-year associates-$75,000-$85,000 per year. They can bill out at almost two-thirds the rate of first-years, at $180-$185 an hour, yielding several hundred thousand dollars in profit apiece.
Skadden's 108 staff attorneys-among the largest number at an Am Law 100 firm-handle most of the document review formerly handled by associates and temporary attorneys. Most work out of a satellite space a block and a half south of the firm's Times Square headquarters in New York City. "We wanted to be able to assure the quality of the work we were doing and be accountable for it," says Skadden litigation partner Joseph Sacca, who runs the two-year-old program. Staff attorneys average close to 2,000 hours a year, slightly less than most Skadden associates, although the firm does not set billable hour targets, Sacca says. (The firm declined to give staff attorney rates, but if they mirror LeBoeuf's, total revenue attributable to staff attorneys could generate up to $39 million, or 2.4 percent of the firm's total revenue last year.)
Sullivan's program, also two years old, has grown to about 50 litigation analysts doing document review. Though the analysts have J.D.s, they are neither marketed nor billed as lawyers. "Economically, it's much cheaper for the clients, and from the standpoint of quality, it's better than using temps," says David Braff, managing partner of Sullivan's litigation group. "And it does give me some degree of comfort." The firm does hire temporary attorneys, which it labels "J.D. paralegals," in large litigation document reviews to supplement its litigation analysts and full-time paralegal staff.
Howrey has also taken a combined approach. With roughly 40 staff attorneys charged with managing, training, and supervising temporary lawyers, it continues to rely on temps for the bulk of its document review. After a harrowing experience in 2001, however, the firm decided to make some big changes, instituting stringent new systems for screening, supervision, and improving productivity. In doing so, Howrey has created a new benchmark for temp management.
In 2001 the firm had ten weeks to help Reuters Group PLC clear a Justice Department antitrust review of its acquisition of rival Bridge Information Systems, Inc. As the review material rolled in, staffing the operation became a nightmare. "The chairman of the board ended up producing more than 80 boxes of e-mails, with 2,500 pages per box," recalls partner John Briggs III, who then headed the antitrust practice. "And everybody under him had an exponentially larger number." In the end, 3,000 boxes and 20 million additional digitized pages had to be collected and reviewed.
The firm initially brought in 200 temporary attorneys; then, scraping the labor market bottom, it had to hire 150 more and rent a former storage facility in suburban Maryland to house them. The first week, the place had to be evacuated and the carpet ripped up because of a flea infestation; later a pipe burst, causing more delays. Temp turnover was a huge problem. "We never knew who was coming and who was going," recalls Denise Marshall, director of capital litigation support services.
"It had become such a massive and uncontrollable situation," says Howrey managing partner and CEO Robert Ruyak, "and frankly, a costly one." The daily food tab alone was $5,000, and because the sites were not convenient to the commuter rail, the firm had to pay for many temps' cab fare, costing another few thousand dollars more per diem.
Something had to be done. When the lease on the Maryland facility expired, Howrey rented a few vacant floors in a suburban Virginia mid-rise office building and reimagined the review process from scratch. "We basically turned [document reviews] into an assembly line," says Howrey's Fina [see "The Howrey Way" ]. The new center, with its open architecture and floor-to-ceiling windows, has been heavily utilized from the moment it opened in November 2004.
"We can have 500 attorneys working at once, with 12 cases going on at once," says antitrust partner Charles "Tim" Engel III. "But you can downsize quickly. We have the [temporary attorneys'] names in the database, and we know who's good. And we have staff attorneys who are very good at supervising these folks." At Howrey, staff attorneys monitor the work of temps and make the more difficult calls about responsiveness or attorney-client privilege. They winnow out the most significant, "hot" documents for associates and partners to review.
The firm has gone further than most to avoid a sweatshop reputation. It is the only firm in the D.C. area that requires its five "preferred" agencies to pay temps the same high hourly rate (currently $35) across the board, and the only firm with space for so many temps, according to local recruiters. About 6 percent of Howrey's temps drop out or are asked to leave, a relatively low turnover rate, recruiters say. Approximately 35-40 percent are carryovers from previous Howrey projects, a relatively high retention rate.
Howrey has also convinced clients to pay substantial markups. For temp hires, it pays agencies roughly $50-$65 an hour for basic document review, billing the same hour to clients at around $125, partners and agency executives confirm-slightly more for antitrust deal-related work, a bit less on class actions and other litigation. In its first year, the litigation support center turned $9 million in profit, representing $12 million in revenue, less $3 million in carrying costs, Ruyak says.
The firm's document review fees "seemed very reasonable for the work that was done," says W. David Romoser, vice president and general counsel for heater and electric motor manufacturer A.O. Smith Corporation, which has looked to the firm for help getting regulatory approval on two acquisitions. He says his company saves money because Howrey cranks out reviews in much less time than it takes other firms. Romoser even paid to have Howrey's lawyers oversee document production for a company being acquired when the target company's lawyers appeared unable to keep to the regulatory timetable.
The firm's reputation for document review projects has helped in two unexpected ways. First, it has helped Howrey win more premium, deal-side antitrust work, which frequently features massive document reviews and tight deadlines, Briggs says. Second, its expertise in managing document reviews on a deadline has led at least one other firm, Wachtell, Lipton, Rosen & Katz, to contract out to Howrey antitrust reviews associated with that firm's M&A practice. Last year, Howrey's antitrust practice earned $108 million, up from $93 million the year before-10-15 percent over projections, Ruyak says. The antitrust practice represented more than a quarter of total 2005 revenues, according to Briggs. Institutionalizing temps and staff attorneys into the firm hierarchy has also helped in recruitment. "Associates understand that, if [they] come to Howrey, the grunge work typically offered to junior associates is going to go to several layers of folks devoted to that work," Engel says. "That's a major selling point."
Is Howrey's model the wave of the future? Investing in a freestanding facility may be workable only for a few firms with heavy document review requirements. "Unless you have the volume of matters day in, day out, it is hard to capture efficiencies," Engel says. "It comes down to pages per hour you're able to process."
Yet in the end it's just good business sense to institute best practices when it comes to the temporary attorneys that increasingly underpin a firm's litigation success. Making document review more professional and spending a little more to better accommodate their temporary lawyers can help firms justify a reasonable profit margin on temp labor. They might even wind up with a new, marketable capability, like Howrey's. And that's no bad thing for any firm's brand.
Contract Attorney Database
Luring the contract attorneys-also called temporary attorneys-was the promise of several months' document review work at $32 an hour plus overtime, potentially worth $50,000 over the four-month review. But the near-chaotic conditions the temps found was more than some bargained for. Jammed along narrow tables in a leased space at Fifteenth and M streets, the 600 temps in Washington coded documents for anything related to telecom competition for later review by Crowell's full-time attorneys. They fought exhaustion to punch in as many hours as possible. Many showed up at 7 a.m. (breakfast buffet) and soldiered on till midnight (lunch and dinner provided). One temp from out of town lived in her car, taking showers at her gym. One slow day, a senior Crowell partner was given a tour. "The floor managers told us, 'Look busy,' " recalls a temp who worked on the case. "So we all stared at our screens, tap-tapping the keyboards randomly."
Despite the circuslike atmosphere, Crowell lead antitrust partner Jeane Thomas says the matter went smoothly and that temporary lawyers were well supervised. The work was among the most complex ever reported on an antitrust regulatory review, so "I'm not surprised to hear that someone said it was hard to keep up with the work," she says. In the end, the amount of paper processed by the lawyers was staggering. "You all have reviewed nearly 3 million pages today," an antitrust partner announced one evening. Temps ultimately combed through more than 100 million electronic pages.
Crowell's use of an army of temps for document review is hardly unique. In an age when law firms spend huge amounts of money on marketing efforts to build their brands, they also increasingly rely on off-label, generic lawyers, most of whose resumes would never get a second glance for an associate-track job. Law firms do it because they have to: Clients are pressing counsel to trim costs, and labor-intensive document reviews are a natural target. Firms, for their part, increasingly find they can't handle the work alone anyway-even if they wanted to-as each new class action or securities fraud investigation brings on a landslide of electronic documents. As a bonus, firms can bill out at higher attorney rates the kind of work that a decade ago might have been assigned to paralegals.
This year, for the first time, The American Lawyer surveyed the nation's largest 200 firms on how they use temps, how they pay for staffing services, and how they bill out temp work. What we found was hardly surprising: Most firms didn't want to talk about it. Just 42 firms responded, many only on condition that their firm not be named in relation to specific fee and rate information. Of the 57 percent that reported using temps, more than three-quarters said they relied on them for more matters in 2005 than in the previous year. Our findings echo those of our sister publication, The National Law Journal. The NLJ 250 survey of the nation's 250 largest firms found the number of temps reported doubled between 2002 and 2003, then increased 48 percent from 2003 to 2004, and by 13 percent between 2004 and 2005. (In 2002, two-thirds of firms surveyed answered the question; in 2003, 2004, and 2005, at least three-quarters of firms answered it.)
Temp hiring may cost clients less, but it has meant big money for the staffing industry, which has found recruits in each year's crop of unemployed, indebted law grads. It has also meant a potential new revenue stream for law firms. Firms like Howrey, with its heavy focus on big-ticket, document-intensive antitrust and litigation work, have learned to turn document review into a new profit center. "The fact is, the work is very lucrative," says consultant Peter Zeughauser, founder of Newport Beach, California-based Zeughauser Group. Even with the relatively modest profit margins on temp labor, he says, "that's what leverage is made of."
Still, many firms balk at hiring temps, wary of a workforce with no firm loyalty or track record. They are also concerned about being perceived as running a legal sweatshop, with page count in place of shirtwaists. Some, like Skadden, Arps, Slate, Meagher & Flom and Sullivan & Cromwell, have created a new category of full-time attorneys outside the associate track to handle document review in place of temps. Still others, like Howrey; Paul, Weiss, Rifkind, Wharton & Garrison; and LeBoeuf, Lamb, Greene & MacRae, use staff attorneys-often former temps themselves-to provide closer supervision of the temp labor pool.
The discomfort that some partners and associates express about temporary attorneys is mirrored by the scorn that many temps express for their employers. Shoehorned into awkward work spaces and virtually unacknowledged as professionals, many complain in chat rooms and blogs about being treated even worse than junior associates-and with no prospect for advancement. "In a perfect world, you'd want your associates to do the work," says LeBoeuf chairman Steven Davis. "But even the biggest firms don't have the resources anymore. The question becomes, how do we do it with care and credibility?"
Temporary attorneys first began to be hired in numbers approaching battalion level several years ago, to deal with new judicial and regulatory expectations. In 1990, most corporate documents were retained as paper; by 2000, 80-90 percent of documents were maintained electronically, but judges remained lenient about electronic data production until 2001-02. Document discovery surged after 2001, as regulators ordered companies, banks, and accounting firms to retain all electronic communications. Regulators and prosecutors demanded complete e-mail records in high-profile cases, such as the Enron Corp./Arthur Andersen LLP litigation, and judges began sanctioning companies for failing to retain or produce the records.
Meanwhile, a spike in M&A transactions engendered vastly more antitrust document review. The number of such transactions nearly doubled between 1995 and 2000, triggering the U.S. Department of Justice to issue more formal antitrust review requests, known as second requests. In the 1990s, "you might end up in a huge matter producing thousands of boxes and millions of pages," recalls Thomas Fina, a Howrey antitrust partner. Nowadays, with electronic data recovery, "you'd have to produce tens or hundreds of millions of pages of documents" on a large matter, Fina says.
Temp hiring has increased fastest in New York and Washington, D.C., because of the concentration of document-intensive white-collar criminal defense, securities litigation, and regulatory matters there. That hiring has been a factor in the double-digit growth in the legal staffing industry, which grew from an estimated $800 million in 2000 to an estimated $1.5 billion in 2006, according to Los Altos, California-based Staffing Industry Analysts Inc., a private industry tracking group. While that number also includes revenue from placing full-time lawyers, paralegals, and legal secretaries, legal staffing agency executives say the fastest-growing part of their business has been in temporary lawyer hires.
Just how much of the money goes to law firms? It varies. The American Bar Association's committee on ethics and professional responsibility concluded in a formal 2000 opinion that firms could bill out temporary attorneys at triple the rate they pay the agency. In our survey, though, only a handful of firms using temps reported triple-billing; a third reported a 0-25 percent markup over the rate the firm pays its agencies, and another third reported a 26-100 percent markup.
Still, the dollars can add up. At an average markup of 100 percent, 100 temporary lawyers hired for four months (the average length of time for an antitrust regulatory review) could generate roughly a $5 million profit for the firm. "Any law firm that doesn't make money off of document review is making a mistake," says Phillips Geraghty, a cofounder and managing director of New York-based legal staffing agency De Novo Legal, LLC.
That the vast majority of firms declined to disclose their temp hiring and billing practices is no surprise, says Zeughauser. "There is an unfounded concern about tarnishing the brand," he says. "The bigger issue is the amount of money that is being made and the uneven billing practices." Firms are concerned that, if clients knew their profit margins, "they'd insist that the work be passed through at cost."
The staffing industry, for its part, follows the law firm business model writ small: For every lawyer hired out, the agency collects roughly 70-80 percent more than what it pays the temp. (Document reviewers get $21-$35 an hour for entry-level work in New York and Washington, D.C., according to agencies and temporary attorneys.) The same four-month document review employing 100 temps may spin off $2-3 million to the agencies.
The relatively easy money has sparked a gold rush of sorts among legal recruiters, which have doubled in number in many major cities in the past five years. Workhorse temps are guarded like trade secrets, says one recruiter; the business of winning over firm clients "is very competitive," says Jodi Feinman, vice president of Legal Placements, Inc., a D.C.-based independent legal recruiter. But with the pie growing fast, nine staffing agencies interviewed for this story-five in D.C. and four in New York-all reported double-digit revenue increases each of the last few years, and all expected similar growth this year [see "Short-Term Staffing, Big-Time Profits"].
Despite potential financial gains, not every firm is getting on board. Just over half of NLJ 250 firms reported hiring temporary attorneys in 2005. Many of those firms use temps only sparingly. "There's a tremendous unease with the concept of hiring temporary attorneys," says LeBoeuf, Lamb's Davis, whose firm hired between a dozen and two dozen such attorneys for each of a handful of litigation matters last year. "You have to use them, but you don't want to."
Ask any litigator where that unease comes from, and he or she will point to the case of the Brown & Williamson Tobacco Corporation "smoking gun" documents. In the early 1990s, Merrill Williams, a paralegal at Louisville-based Wyatt, Tarrant & Combs, allegedly copied and gradually carried off about 4,000 pages of internal company documents, sneaking them out under his shirt-and providing key ammunition to prosecutors and plaintiffs attorneys when he leaked them in 1994. (Williams was sued-unsuccessfully-by the tobacco industry, seeking return of the documents.)
The discomfort level rises a few notches when firms are forced to use space provided by the agencies. "If you're in the staffing agency's office using their copy machines, that doesn't sit well with me," says LeBoeuf, Lamb executive director Stephen DiCarmine. "What if [another firm's] lawyer comes in the next day and finds one of your client's documents sitting there?" (None of the six law firms interviewed for this story reported any security breaches.)
The desire to keep the work on-site has resulted in some grim environments for temps. Working conditions at one New York firm are "crowded, dark, and [with] only a small bathroom," wrote one temp in an anonymous online posting in July. Other firms, like Sullivan & Cromwell and Cadwalader, Wickersham & Taft, generally receive more positive reviews for providing good pay, a decent working environment, and an ambience of respect. "It's very hit-or-miss," says a New York temp attorney, speaking of how firms treat temps. "The law firm can really do whatever they want. That's really the problem, because the temps have no choice but to take whatever [job] comes along."
Temp work is a professional catch-22: "We are told not to put 'contract attorney' on our resumes, otherwise you are looked down on," said one D.C.-area temp who has been looking for a full-time job for years. And most firms don't permit temps to make calls, surf the Web, or e-mail on the job, an obstacle to finding permanent employment.
Meanwhile, the money is good enough to make it hard to leave. Temps can make twice the $40,000-$50,000 offered to entry-level associates in New York and Washington at small firms or insurance defense firms. And they don't have to pass the bar to do it-though most firms we heard from required temporary attorneys to be licensed in some state.
The pay is unpredictable, however. In dozens of interviews, e-mails, and publicly posted blogs, temp lawyers complain that firms and agencies routinely make empty promises about a project's duration. Temps gripe that they can be dropped from the work rolls with no advance warning. That's what happened at Crowell during the SBC matter after a sudden drop in work eight weeks into what was supposed to be a four-month assignment. As the lawyers exited the lunchroom, they had to file past an agency manager with a checklist. "If she took your badge, that meant you were out," a Crowell temp recalls. "All she said [was], 'Thank you for your services.' "
But if temp attorneys jump ship for other, better-paying or longer-term jobs, they risk being blacklisted. "There are agencies and firms that have a database for attendance, for loyalty," confirms one legal staffing recruitment executive. "People can burn bridges with agencies and law firms. A lot of [contract attorneys] don't realize that."
Looking for alternatives to temps, some firms have created yet another layer of non-partnership-track lawyers, variously known as staff attorneys, document coordinators, and litigation analysts. In fact, in our survey, half the firms using temps also employed staff attorneys, many of them former temps themselves.
Staff attorneys can prove highly profitable in the leverage game. LeBoeuf, Lamb's five staff attorneys are graduates of law schools that range from first to third tier, and they are paid slightly more than half the salary of first-year associates-$75,000-$85,000 per year. They can bill out at almost two-thirds the rate of first-years, at $180-$185 an hour, yielding several hundred thousand dollars in profit apiece.
Skadden's 108 staff attorneys-among the largest number at an Am Law 100 firm-handle most of the document review formerly handled by associates and temporary attorneys. Most work out of a satellite space a block and a half south of the firm's Times Square headquarters in New York City. "We wanted to be able to assure the quality of the work we were doing and be accountable for it," says Skadden litigation partner Joseph Sacca, who runs the two-year-old program. Staff attorneys average close to 2,000 hours a year, slightly less than most Skadden associates, although the firm does not set billable hour targets, Sacca says. (The firm declined to give staff attorney rates, but if they mirror LeBoeuf's, total revenue attributable to staff attorneys could generate up to $39 million, or 2.4 percent of the firm's total revenue last year.)
Sullivan's program, also two years old, has grown to about 50 litigation analysts doing document review. Though the analysts have J.D.s, they are neither marketed nor billed as lawyers. "Economically, it's much cheaper for the clients, and from the standpoint of quality, it's better than using temps," says David Braff, managing partner of Sullivan's litigation group. "And it does give me some degree of comfort." The firm does hire temporary attorneys, which it labels "J.D. paralegals," in large litigation document reviews to supplement its litigation analysts and full-time paralegal staff.
Howrey has also taken a combined approach. With roughly 40 staff attorneys charged with managing, training, and supervising temporary lawyers, it continues to rely on temps for the bulk of its document review. After a harrowing experience in 2001, however, the firm decided to make some big changes, instituting stringent new systems for screening, supervision, and improving productivity. In doing so, Howrey has created a new benchmark for temp management.
In 2001 the firm had ten weeks to help Reuters Group PLC clear a Justice Department antitrust review of its acquisition of rival Bridge Information Systems, Inc. As the review material rolled in, staffing the operation became a nightmare. "The chairman of the board ended up producing more than 80 boxes of e-mails, with 2,500 pages per box," recalls partner John Briggs III, who then headed the antitrust practice. "And everybody under him had an exponentially larger number." In the end, 3,000 boxes and 20 million additional digitized pages had to be collected and reviewed.
The firm initially brought in 200 temporary attorneys; then, scraping the labor market bottom, it had to hire 150 more and rent a former storage facility in suburban Maryland to house them. The first week, the place had to be evacuated and the carpet ripped up because of a flea infestation; later a pipe burst, causing more delays. Temp turnover was a huge problem. "We never knew who was coming and who was going," recalls Denise Marshall, director of capital litigation support services.
"It had become such a massive and uncontrollable situation," says Howrey managing partner and CEO Robert Ruyak, "and frankly, a costly one." The daily food tab alone was $5,000, and because the sites were not convenient to the commuter rail, the firm had to pay for many temps' cab fare, costing another few thousand dollars more per diem.
Something had to be done. When the lease on the Maryland facility expired, Howrey rented a few vacant floors in a suburban Virginia mid-rise office building and reimagined the review process from scratch. "We basically turned [document reviews] into an assembly line," says Howrey's Fina [see "The Howrey Way" ]. The new center, with its open architecture and floor-to-ceiling windows, has been heavily utilized from the moment it opened in November 2004.
"We can have 500 attorneys working at once, with 12 cases going on at once," says antitrust partner Charles "Tim" Engel III. "But you can downsize quickly. We have the [temporary attorneys'] names in the database, and we know who's good. And we have staff attorneys who are very good at supervising these folks." At Howrey, staff attorneys monitor the work of temps and make the more difficult calls about responsiveness or attorney-client privilege. They winnow out the most significant, "hot" documents for associates and partners to review.
The firm has gone further than most to avoid a sweatshop reputation. It is the only firm in the D.C. area that requires its five "preferred" agencies to pay temps the same high hourly rate (currently $35) across the board, and the only firm with space for so many temps, according to local recruiters. About 6 percent of Howrey's temps drop out or are asked to leave, a relatively low turnover rate, recruiters say. Approximately 35-40 percent are carryovers from previous Howrey projects, a relatively high retention rate.
Howrey has also convinced clients to pay substantial markups. For temp hires, it pays agencies roughly $50-$65 an hour for basic document review, billing the same hour to clients at around $125, partners and agency executives confirm-slightly more for antitrust deal-related work, a bit less on class actions and other litigation. In its first year, the litigation support center turned $9 million in profit, representing $12 million in revenue, less $3 million in carrying costs, Ruyak says.
The firm's document review fees "seemed very reasonable for the work that was done," says W. David Romoser, vice president and general counsel for heater and electric motor manufacturer A.O. Smith Corporation, which has looked to the firm for help getting regulatory approval on two acquisitions. He says his company saves money because Howrey cranks out reviews in much less time than it takes other firms. Romoser even paid to have Howrey's lawyers oversee document production for a company being acquired when the target company's lawyers appeared unable to keep to the regulatory timetable.
The firm's reputation for document review projects has helped in two unexpected ways. First, it has helped Howrey win more premium, deal-side antitrust work, which frequently features massive document reviews and tight deadlines, Briggs says. Second, its expertise in managing document reviews on a deadline has led at least one other firm, Wachtell, Lipton, Rosen & Katz, to contract out to Howrey antitrust reviews associated with that firm's M&A practice. Last year, Howrey's antitrust practice earned $108 million, up from $93 million the year before-10-15 percent over projections, Ruyak says. The antitrust practice represented more than a quarter of total 2005 revenues, according to Briggs. Institutionalizing temps and staff attorneys into the firm hierarchy has also helped in recruitment. "Associates understand that, if [they] come to Howrey, the grunge work typically offered to junior associates is going to go to several layers of folks devoted to that work," Engel says. "That's a major selling point."
Is Howrey's model the wave of the future? Investing in a freestanding facility may be workable only for a few firms with heavy document review requirements. "Unless you have the volume of matters day in, day out, it is hard to capture efficiencies," Engel says. "It comes down to pages per hour you're able to process."
Yet in the end it's just good business sense to institute best practices when it comes to the temporary attorneys that increasingly underpin a firm's litigation success. Making document review more professional and spending a little more to better accommodate their temporary lawyers can help firms justify a reasonable profit margin on temp labor. They might even wind up with a new, marketable capability, like Howrey's. And that's no bad thing for any firm's brand.
Contract Attorney Database
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