An indicted attorney from the law firm of Baker & McKenzie resigned from the firm. See here.
(esp)(w/ a hat tip to John Wesley Hall)
Category: Defense Counsel
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The search of WellCare Health Plan’s headquarters by, among others, FBI agents (earlier post here) triggered — as expected — an immediate response: let’s hire lawyers! A press release (on Business Wire here) states that since the search and carting away of boxes of documents, the company has:
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Been in direct contact with its Board of Directors, including members of the audit committee;
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Committed to cooperating with the federal and state authorities involved in the investigation;
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Retained the law firms of King & Spalding and Greenburg [sic] Traurig to assist the Company with responding to the investigation;
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Engaged with the Company’s auditors, Deloitte & Touche LLP;
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Been in contact with key constituents, including state and federal regulators in each of the Company’s markets.
It’s not clear why two national law firms have been retained, but maybe two — or twenty counting all the partners and associates — heads are better than one. WellCare’s stock lost over 60% of its value the day following the search, showing the devastating effect a criminal investigation can have for a company’s investors. While the scope of the investigation is not yet clear, any inquiry into possible healthcare fraud carries a serious danger of criminal and civil fines and penalties, and could even include exclusion from the Medicaid program if an extensive fraudulent scheme were uncovered. (ph)
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The government had asked for the removal of one of the defense counsel in the KPMG case claiming a conflict of interest (see here). The Washington Post reports (here) that the court has accepted the argument, removing counsel and delaying the trial yet again. The Order (available below) begins by noting that "[t]he government belatedly called to the Court’s attention certain possible conflicts of interest . . . ." (italics added) Trial was scheduled to start October 23 with the opening statements, but that has now been postponed, with a new trial date to be set at a hearing on November 16. With the government’s appeal of the dismissal of thirteen defendants from the case pending before the Second Circuit, it will be interesting to see if the appellate process beats the start of the trial. If the court of appeals were to reverse Judge Lewis Kaplan’s dismissal order before the trial begins, it’s likely that would engender even further delay as the court then would have to schedule a trial of all defendants, working with the schedules of seventeen lawyers — something akin to herding cats.
The prosecutors argued that defense counsel may have provided legal advice to a defendant who is now cooperating with the government. This is yet another example of the issues counsel faces if entering into a joint defense agreement. These agreements are often necessary to exchange information and also to keep the costs for preparation of trial at a lower level. When counsel can share experts, the client saves funds. But when one client flips, and the deal includes that they will cooperate against another who was part of the joint defense agreement, problems can arise. And counsel can be left without a client if the sharing of information causes a conflict to arise.
(esp & ph)
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Campaign contributions are given for a variety of reasons, and I suspect most donors don’t think that their donations will be used to pay lawyers advising elected officials in government investigations. TPM Muckraker reports (here) that a number of Congressmen are using funds from campaign committees to pay their lawyers because they have been caught up in a variety of federal corruption probes. Among those using campaign money for legal fees, as reported in the most recent quarterly campaign finance reports, are:
- Rep. Jerry Lewis (Calif.): $26,982 in the quarter and a total of nearly $1 million in the past year to two law firms, including Gibson Dunn;
- Rep. Don Young (Alaska): $183,785 and a total of $447,000 to two law firms, including Akin Gump.
- Rep. Rick Renzi (Arizona): $111,042 and a total of $148,000 to two law firms (Patton Boggs and Steptoe & Johnson).
- Rep. Alan Mollohan (West Virginia): $55,000 and a total of $78,000 to one law firm.
Can it be legal to use campaign contributions for legal expenses? The Federal Election Commission has interpreted the campaign finance laws as permitting such payments. In AO 2005-11 (Sept. 26, 2005) (available below), the FEC responded to a request by former Rep. Randy "Duke" Cunningham’s campaign committee for a ruling whether it could pay his attorneys during the federal investigation that led to his guilty plea and lengthy prison sentence on bribery charges. The Opinion states:
The Commission concludes that the Committee may use campaign funds to pay for the legal fees and expenses incurred in connection with the grand jury investigation and legal proceedings that may arise from this investigation because the investigation concerns allegations that are related to Representative Cunningham’s campaign activities or his duties as a Federal officeholder and the legal fees and expenses would not exist irrespective of Representative Cunningham’s campaign or duties as a Federal officeholder. The Committee may also use campaign funds to pay for the legal fees and expenses incurred in responding to the press regarding the grand jury investigation and legal proceedings that may arise from this investigation.
Maybe it’s just me, but an investigation of misuse of office for personal gain does not seem to be related to a Congressman’s "duties as a Federal officeholder," but that’s what the FEC has decided. It may be that the campaign committee is a bit like an indemnification provision in a corporation’s by-laws — a special form of protection in case there’s an investigation related to conduct during the term of office, even it the conduct is criminal, as in the case of Cunningham. That said, I doubt most donors understand that their contributions can be used to pay lawyers to defend the official in a corruption probe.
The more traditional method for government officials to take donations to pay their lawyers is to set up a legal defense fund, which is subject to different reporting requirements and donation limits than a campaign committee. Representative William Jefferson of Louisiana, who is under indictment on a variety of corruption-related charges, has decided to go that route rather than use campaign donations to pay for his lawyers. (ph)
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All the recent investigations and subsequent prosecutions of senior executives, especially CEOs, is creating a boomlet for white collar criminal defense lawyers and some significant costs for companies on the hook for the attorney’s fees. A Bloomberg article (here) notes that Brocade Communications Systems Inc. has paid over $38 million in legal fees related the investigation of options backdating along with the defense costs of former CEO Gregory Reyes and other executives charged in criminal and SEC civil enforcement actions. That does not include the $7 million Brocade paid as a civil penalty to settle the SEC case against the company. In the most recent quarter ending in July, the company spent over $18 million on legal fees while making a profit of $10.7 million. In all likelihood that amount does not include the bulk of the costs for Reyes’ criminal trial that ended with a conviction in August, for which his lawyers from Skadden Arps probably didn’t submit bills until after the quarter ended.
An American Lawyer article (here) discusses other high-price legal defenses for corporate executives and the costs for intensive internal investigations — conducted by lawyers, of course — related to options backdating:
- Mercury Interactive spent $72 million before it was acquired by Hewlett-Packard, which no longer breaks out its results separately;
- KLA-Tencor spend $38.6 million;
- Monster, Inc. spent $32 million;
- CNET Networks spent $21 million.
A case that generated significant legal fees outside the backdating realm was the defense of former Enron CEO Jeffrey Skilling, which came in at around $75 million before the most recent work on his criminal appeal — and don’t think his 200+ appellate brief to be argued by former Solicitor General Walter Dellinger will come cheap. A recent district court case involving a former executive of Westar involved claimed attorney’s fees of over $15 million, including nearly $3 million spent on the successful appeal of a conviction that will lead to a third criminal trial.
For anyone contemplating serving as an officer or director of a public company, a good indemnification clause is an absolute must. Corporations paying out these fees are never very happy when the conduct of executives ends up being so costly, but it seems to be the price to be paid for hiring and retaining CEOs, directors, and other officers. (ph)
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LawProf Blog emperor Paul Caron on the TaxProf Blog reports (here) on actor Wesley Snipes changing counsel for his upcoming tax fraud trial in Florida. The judge initially denied the request for a continuance because of the change of counsel, finding that Snipes was improperly trying to delay the trial. The judge has now ordered a ninety-day continuance (see order below), in response to a motion for reconsideration (also available below) that is amazing for its attack on Snipes’ prior attorney. In the motion, the new lawyer attacks all aspects of the prior representation, including the interesting claim that the attorney’s lack of due diligence came to Snipes’ attention from his representation of former Atlanta Falcons quarterback Michael Vick on dog fighting charges.
How does the Vick case have anything to do with a tax evasion charge, you might ask? According to the motion, Snipes — who played Indians center fielder Willie May Hays in the two Major League movies (YouTube clip here) — became concerned because his former counsel seemed to misunderstand the dual sovereignty doctrine that permitted state prosecutors to indict Vick for conduct that was the subject of the federal prosecution. At that point, Snipes sought out his new lawyer, who had earlier represented him on a New York state civil matter. It’s hard to see how the representation of Vick influenced Snipes’ decision to change counsel, but that apparently is what got the ball rolling. The motion notes that Snipes plans to raise a selective prosecution claim, which is a difficult one to win.
The district court refused to credit new counsel’s claims of ineffective representation by his predecessor. According to the continuance order, the judge asked whether Snipes planned to file a bar complaint against his prior attorney, and the answer was negative, so "the Court declines to place any credence in the claim of ineffective assistance of counsel." Instead, the court granted the motion due to the "irreconcilable differences" between Snipes and his prior counsel, although it probably didn’t help much that the old lawyer labeled his last filing a "Motion to Withdrawal." The tone of the continuance order makes it clear the judge remains suspicious of Snipes, which usually does not bode well. The case will now begin in January 2008. (ph)
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Former Attorney General Alberto Gonzales has made the standard move of any person subject to a governmental inquiry involving a white collar crime — he hired his own defense counsel. Gonzales retained George Terwilliger, a former Deputy Attorney General during the administration of the first President Bush. The Department of Justice’s Inspector General informed the Senate Judiciary Committee in August that it was investigating a number of issues involving the firing of eight U.S. Attorney’s and whether Gonzales’s testimony before the Committee constituted perjury, so there’s a very good reason to lawyer up. According to the IG’s letter (here):
The OIG has ongoing investigations that relate to most of the subjects addressed by the Attorney General’s testimony that you identified. In particular, the OIG is conducting a review relating to the terrorist surveillance program, as well as a follow-up review of the use of national security letters. In addition, the OIG is conducting a joint investigation with the Department’s Office of Professional Responsibility into allegations regarding the removal of certain United States Attorneys and improper hiring practices.
Terwilliger is a partner at White & Case so he will not come cheaply, and Gonzales has been working for the state and federal government since 1994 so his economic resources may be limited. Don’t be surprised to see a legal defense fund organized soon to help out with the legal costs, if it hasn’t begun already. An AP story (here) discusses Gonzales retaining Terwilliger. (ph)
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Both the New York Times here and the ABAJrl.com here are reporting that prosecutors in the KPMG related case are trying to conflict-out two defense counsel. The prosecutors are claiming that the two defense counsel may have provided legal advice to David Amir Makov, who is now cooperating with the government. Interestingly, the ABAJrl.com states that the lawyers for Makov do not see the problem alleged by the government. If the witness has his own lawyer, and that lawyer doesn’t see the issue, why is the government claiming one exists?
The term "secret defense agreement" as used in the article may make what occurred here sound somewhat nefarious. In reality, joint defense agreements are quite common today. Multiple defendants will enter into these agreements for the purpose of exchanging information yet maintaining the attorney-client privilege. They also allow the multiple defendants to cut costs by perhaps hiring one accountant, investigator, or other expert. With the costs placed upon defendants facing white collar charges, this is understandable. These agreements, however, can become a problem when one defendant who is a party to the agreement decides to testify for the government.
(esp)
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As the investigations of corporate options backdating wind down, the next source of cases for the white collar crime departments at major firms is appearing on the horizon: investigations of companies that received contracts as part of the Iraq rebuilding effort. As discussed in an earlier post (here), the Department of Defense Inspector General will be heading to Iraq with a team to look into the award of billions of dollars worth of contracts, and Capitol Hill will be conducting hearings on the contracts. According to a story in The National Law Journal (here), "The war in Iraq has an army of high-profile attorneys working to steer defense contractors through a minefield of lawsuits and federal investigations involving war profiteering and fraud." Here is the primary selling point to firms facing increased scrutiny: "The first step in surviving a government inquiry: Get the right lawyer." Well, of course that’s what you have to do, silly, and don’t ask how much it will cost, because you can’t really know and probably won’t want to think about it as the bills for a cadre of lawyers for the company and individual officers come rolling in. (ph)
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It is rare that one succeeds on a Hyde Amendment claim, but occasionally it happens. A U.S. District Court in the Southern District of Texas issued such an order. In the Introduction, the court states:
"The United States Attorney indicted an Oklahoma businessman in conscious indifference to the legal and factual basis of the charges that they brought against him. The fifty-four-count indictment was a jumble of claims and stray facts – a garbled press release about working men who cannot get insurance. The court dismissed all counts of the indictment. The businessman seeks defense costs. He will be repaid because the prosecution was not substantially justified."
And in the conclusion the court states:
"Criminal prosecution casts a shadow on defendants that can linger even after an acquittal. The discretion the government has to prosecute those it thinks guilty of crimes must be grounded in a sound facts and articulated law. The Hyde Amendment was passed to give some recompense to those prosecuted without this most basic discretionary safeguard from prosecutorial oppression. The case against [this individual] lacked even a semblance of responsible work by the government. His attorneys had to work with a jumbled array of facts and theories, a mountain of documentary evidence, and unresponsive government lawyers."
Order – Download hyde20amendment20opinion2020claro.pdf
(esp)
MattBray.net 