November 6, 2015

Painful lessons for lawyers and businesspeople from the death of a major law firm

Posted in Commercial Litigation, Corporate Litigation by Gene Killian |

I was listening to a lecture by Jim McElhaney, a terrific teacher of trial practice skills, awhile back. One of Professor McElhaney’s tenets is to keep it simple while trying cases: Never use a dollar word, for example, when a nickel word will do. Some lawyers vigorously resist this concept. They think they need to cloak themselves in legal mumbo-jumbo in order to be taken seriously. So they use words and phrases like “beyond peradventure,” “allegedly,” “heretofore,” and “pursuant to” – words that real people can easily misunderstand.  One of the other lawyers listening to McElhaney’s lecture, in fact, objected that she didn’t like the idea of using simple words, because she was afraid that the listeners would think she was simple. To which Professor McElhaney astutely replied, “What’s wrong with that?”

The truth is that “simple” wins cases and can close deals.  “Simple” avoids misunderstandings. “Simple” makes for better business communication.  If you don’t believe me, let’s take a (brief) look at the recent blockbuster criminal trial involving former executives of the now-defunct mega-law firm, Dewey & LeBoeuf, LLP.    

After the firm’s demise, prosecutors accused former Dewey Chairman Steven Davis, former Dewey Executive Director Stephen DiCarmine, and former Dewey Chief Financial Officer Joel Sanders of “cooking the books” to defraud banks and investors in the aftermath of the 2008 financial crisis. The firm had once employed more than 1200 lawyers, but collapsed in bankruptcy in May 2012. 

After the expenditure of an exorbitant amount of taxpayer dollars, after a four-month trial with testimony from 41 witnesses, including seven former Dewey employees, and after several excruciating weeks of jury deliberation, the case ground to a halt.  The jury deadlocked on the most serious charges, and the judge was forced to declare a mistrial.  Now the prosecutor is considering refiling the case and starting all over again.

What went wrong, and what are some key lessons that lawyers and businesspeople can learn from the trial?  Here are a few thoughts.

  1. KISS

We don’t handle criminal cases at our firm, but I know from trying many complex commercial and insurance coverage cases that there’s a high MEGO factor (“My Eyes Glaze Over”) for jurors and judges confronted by mountains of data, especially after lunch.  I remember a bench trial involving complex accounting and ERISA issues years ago, for example. Late in the afternoon, the judge presiding over the trial fell asleep on the bench, and started snoring. I looked at my adversary, and he looked at me. We weren’t sure what to do. So, I dropped a big rule book on the ground and the judge woke up from the noise. Then he fell asleep again, and I had to do it again. True story.

Your presentation, either in business or at trial, is only as good as your ability to hold the listeners’ attention. You better figure out a way to make the complex simple, or you’re very likely to get a bad result, especially when you’re presenting highly technical information. Consider some of the notes that the jury sent out to the judge in the Dewey trial:

  • “We are hopelessly deadlocked. We have a differing interpretation on intent and awareness for each defendant.” (Why weren’t those concepts clearly and simply explained?)  
  • At one point, the panel sent a note to the judge requesting a definition of “deliberations” and asking what their “job” was. (Words that lawyers and other professionals take for granted are often confusing to normal human beings who speak Plain English.) 
  • The jurors asked the judge whether proving grand larceny requires that the stolen money go directly to the “thief.” (No, but why wasn’t this explained clearly in closing?) 
  • The jurors asked the judge whether the words “false” and ”inappropriate” with respect to accounting adjustments meant “illegal.” (Again no, and again why wasn’t this explained clearly in closing?) 
  • The jury asked the judge to reread the elements necessary for finding defendants guilty of falsifying business records, “super slowly.” (Not a good sign for the prosecutors...)

The bottom line is that the prosecution case may have been way too complex.  (Remember the O.J. criminal trial?) The jury had to consider 151 charges against the three defendants, all involving arcane and technical language and concepts, and that was after the prosecutors had already dismissed dozens of counts before the jury got the case!  It’s pretty telling that that defense called no witnesses at all.  As Napoleon once said, “When the enemy is in the process of destroying himself, do not interfere.”

And as Einstein once said, “If you can’t explain it to a six-year-old, you don’t understand it yourself.”

  1. Think carefully before you write stuff.

One of my former partners used to say, “Always follow the New York Times rule.  If you wouldn’t want to see it on the front page of the New York Times, then don’t put it in writing.”  And I have a client who claims that “e-mail” actually stands for “evidence mail.”

Lawyers and businesspeople trade on credibility, patience and wisdom.  With that in mind, consider some of the internal Dewey e-mails that came to light in this trial.  The prosecutors introduced evidence of a power struggle at Dewey’s predecessor firm LeBoeuf Lamb, months before that firm merged into Dewey in October 2007. A particular attorney (I’ll call him “Smith”) had envisioned becoming Chairman of LeBoeuf, but Steven Davis (later one of the defendants in the criminal case) was reappointed to another term as the head of the firm. Smith then apparently let loose a course of angry emails against Davis and certain executive committee members.  The e-mails, which were introduced into evidence at the trial, included the following:

“Why in the f*** is [a certain executive committee member] the one guy who is determining the future of this firm. These are the a**holes are afraid of melee not us.”

“I think many of us would be surprised to [learn] that squat ignorant mother****er is the kingmaker.”

“Suck my **** DiCarmine.”

“BTW, Steve DiCarmine, if you are reading this, I’ll have your f***ing head on a stick.”

I don’t know Smith, and I have the luxury of 20/20 hindsight, which is a wonderful thing.  Also, everyone makes mistakes sometimes, and everyone loses his or her temper sometimes.  But I ask you:  Would these e-mails make you want to hire this lawyer to represent you?  (Some people and companies may answer “yes” to that question. They think they want or need hyper-aggressive lawyers representing them.  That’s wonderful until the hyper-aggressive lawyer annoys the other side so much that deals can’t get done, or annoys the judge or jury, or until the client receives the hyper-aggressive lawyer’s bills.  Obnoxiousness and a bad temper can be pretty costly.)

So think twice before hitting that “send” button.

  1. White hats, black hats.

Trials are morality plays.  At trial – whether a bench trial before a judge, or a jury trial – the factfinder is always trying to figure out which side has the moral high ground. (I can analogize this to business deals. Many times, deals turn on which suitor is more likable.)

In this case, the prosecution argued that a dozen or so insurance companies that bought into a bond offering floated by the firm in 2010 were the victims of the alleged fraud. For example, Transamerica Life Insurance Company expected to lose $4.5 million of its $15 million investment. Initially, the prosecutors planned to call a representative from each of the insurance companies that lost money, to testify about why his or her employer thought investing in Dewey was a good decision. Instead, the prosecutors presented a statement in writing from each company explaining how much they lost, and why they decided to invest in Dewey back in 2010. Only one insurance company representative actually testified, from Hartford Financial Services Group. The Hartford representative told the jury that Dewey management assured him that the firm was doing well financially when Hartford invested $40 million in the private placement. The notes later sold for sixty cents on the dollar.

I think you can see some of the problems here. First, most people don’t think of banks and insurance companies the way they think of widows and orphans. I often worry about this when I represent corporate parties in court. You have to figure out a way to humanize your client, even if it’s a corporation. Second, it’s very easy for jurors to conclude that a financial services company (or any corporation) should have done better due diligence.  Jurors sometimes fall into the “a pox on both your houses” mindset.

I’ll conclude with a couple of random observations.

First, I don’t know whether these Dewey lawyers are guilty, or not. What I do know is that a moral compass is very important in business, and in life.  At our firm, Larry Donnithorne’s little gem of a book, “The West Point Way of Leadership,” is required reading.  Donnithorne talks about the important concept of “The Harder Right” when making decisions.  Here’s the series of questions that Donnithorne recommends for moral decisionmaking:

  1. What are the relevant facts of the situation?
  2. What are the alternative actions available?
  3. Who will be affected?
  4. What moral principles are involved?
  5. How would these principles be advanced or violated by each alternative action?

And finally, if you’re a corporate executive, now would be a good time to examine your Directors & Officers liability coverage.  One of the things you want to look for is severability – that is, you don’t want the actions of a fellow director or officer to be imputed to you in the event of wrongdoing. (I can’t even imagine how much these defendants have spent defending themselves, and how much more they’re going to spend when the prosecution refiles the case.) But that’s a topic for our insurance blog.

- Gene Killian