Morgan Stanley Gets a Lesson On Lawyers And the Law
Morgan Stanley Gets a Lesson On Lawyers And the Law
May 17, 2005
Morgan Stanley Gets a Lesson On Lawyers And the Law
By JONATHAN D. GLATER
At least one lesson of the legal brawl between Ronald O. Perelman and Morgan Stanley is clear: Don't pick a public fight with your lawyer on the eve of trial.
Scant weeks before the trial was set to begin, Morgan Stanley and its outside law firm, Kirkland & Ellis, parted ways -- though which side drove the separation is not entirely clear. In proceedings in state court in West Palm Beach, Fla., both lawyer and client asserted that a serious conflict of interest had arisen, and Morgan Stanley told the law firm to expect a civil malpractice lawsuit. Morgan Stanley went to trial with lawyers who repeatedly told the court that they were not as prepared as Mr. Perelman's team.
Yesterday the jury hearing the case weighed in, ordering Morgan Stanley to pay Mr. Perelman $604 million in damages. Jurors still have to consider possible additional punitive damages, and the bigger the total, the more likely Morgan Stanley will try to force Kirkland & Ellis to help pay the bill.
More went wrong in Morgan Stanley's case than just the last-minute lawyer swap. The presiding judge, Elizabeth T. Maass, dealt a serious blow to the investment firm when she instructed jurors that Morgan Stanley had to persuade them that the firm did not conspire to commit fraud -- a shift of the burden of proof; typically, Mr. Perelman's lawyers would have had to prove fraud.
After Kirkland & Ellis was out, Morgan Stanley's new lawyer asked the court for more time to prepare for trial, known as a continuance, arguing that the orders of the judge had created the conflict that prevented Kirkland & Ellis from serving as outside counsel. Judge Maass denied the request, stating that she did not know what the conflict was.
''Morgan Stanley was unwilling to waive any attorney-client privilege and tell me what the nature of that claim was,'' the judge said at a proceeding in March, explaining her reluctance to grant a continuance. She added, several minutes later, ''How would you ever test whether there truly was a potential malpractice claim or it was simply a ruse to allow counsel to withdraw and potentially get a continuance?''
If switching lawyers was intended to buy time, the strategy failed.
A spokesman for Morgan Stanley declined to comment. Lawyers at Kirkland & Ellis, citing client confidentiality, issued a brief statement yesterday, saying, ''There was absolutely no malpractice committed by Kirkland & Ellis.''
Court filings and transcripts hint at one reason Kirkland & Ellis and Morgan Stanley may have decided to part ways: an embarrassing mess over providing documents. Although a Morgan Stanley executive certified in June 2004 that the firm had produced all documents and e-mail messages required by the court, the company found additional documents and e-mail messages months after they should have been turned over to Mr. Perelman's lawyers.
That is why the court issued an order reversing the burden of proof. The judge concluded that Morgan Stanley ''has deliberately and contumaciously violated numerous discovery orders.''
When Judge Maass told members of the jury that they could hold the failure to produce evidence against Morgan Stanley, the instruction no doubt helped Mr. Perelman's lawyers considerably in their arguments while also contributing to the jury's decision.
But transcripts and court filings do not explain how the document production fiasco led to a conflict between the company and its former lawyers. Mark Hansen, one of Morgan Stanley's new lawyers, insisted in court that the conflict was self-evident once the firm told Kirkland & Ellis that it could face a malpractice claim.
''When a client puts a lawyer on notice like that, it creates the conflict because the issue is the relationship between the lawyer and client,'' Mr. Hansen said.
The judge was unconvinced. ''None of that is relevant,'' she said in court ''unless and until I know what it is Morgan Stanley believes Kirkland & Ellis did that was legal malpractice. And so far you have been unwilling to disclose that.''
Mr. Hansen responded simply, ''We can't waive the privilege.''
A dispute like the one involving Morgan Stanley and Kirkland & Ellis is highly unusual. A typical conflict of interest for a law firm involves a current client whose interests run counter to those of a past, present or future client or a lawyer representing both parties to the same dispute.
When the client's interests and the lawyer's interests are at odds, ''you can't do the representation,'' said Bruce Green, a professor at the Fordham University School of Law, who teaches legal ethics. ''There're no hard and fast rules.''
It could be, for example, that a law firm in Kirkland & Ellis's position might be more cautious in representing its client after being told of a potential malpractice claim. If there is a malpractice suit filed by Morgan Stanley, eventually many of the details will become public. For now, Mr. Green said, ''It's hard to say without knowing all the facts.''
Copyright 2005 The New York Times Company | Permissions | Privacy Policy
May 17, 2005
Morgan Stanley Gets a Lesson On Lawyers And the Law
By JONATHAN D. GLATER
At least one lesson of the legal brawl between Ronald O. Perelman and Morgan Stanley is clear: Don't pick a public fight with your lawyer on the eve of trial.
Scant weeks before the trial was set to begin, Morgan Stanley and its outside law firm, Kirkland & Ellis, parted ways -- though which side drove the separation is not entirely clear. In proceedings in state court in West Palm Beach, Fla., both lawyer and client asserted that a serious conflict of interest had arisen, and Morgan Stanley told the law firm to expect a civil malpractice lawsuit. Morgan Stanley went to trial with lawyers who repeatedly told the court that they were not as prepared as Mr. Perelman's team.
Yesterday the jury hearing the case weighed in, ordering Morgan Stanley to pay Mr. Perelman $604 million in damages. Jurors still have to consider possible additional punitive damages, and the bigger the total, the more likely Morgan Stanley will try to force Kirkland & Ellis to help pay the bill.
More went wrong in Morgan Stanley's case than just the last-minute lawyer swap. The presiding judge, Elizabeth T. Maass, dealt a serious blow to the investment firm when she instructed jurors that Morgan Stanley had to persuade them that the firm did not conspire to commit fraud -- a shift of the burden of proof; typically, Mr. Perelman's lawyers would have had to prove fraud.
After Kirkland & Ellis was out, Morgan Stanley's new lawyer asked the court for more time to prepare for trial, known as a continuance, arguing that the orders of the judge had created the conflict that prevented Kirkland & Ellis from serving as outside counsel. Judge Maass denied the request, stating that she did not know what the conflict was.
''Morgan Stanley was unwilling to waive any attorney-client privilege and tell me what the nature of that claim was,'' the judge said at a proceeding in March, explaining her reluctance to grant a continuance. She added, several minutes later, ''How would you ever test whether there truly was a potential malpractice claim or it was simply a ruse to allow counsel to withdraw and potentially get a continuance?''
If switching lawyers was intended to buy time, the strategy failed.
A spokesman for Morgan Stanley declined to comment. Lawyers at Kirkland & Ellis, citing client confidentiality, issued a brief statement yesterday, saying, ''There was absolutely no malpractice committed by Kirkland & Ellis.''
Court filings and transcripts hint at one reason Kirkland & Ellis and Morgan Stanley may have decided to part ways: an embarrassing mess over providing documents. Although a Morgan Stanley executive certified in June 2004 that the firm had produced all documents and e-mail messages required by the court, the company found additional documents and e-mail messages months after they should have been turned over to Mr. Perelman's lawyers.
That is why the court issued an order reversing the burden of proof. The judge concluded that Morgan Stanley ''has deliberately and contumaciously violated numerous discovery orders.''
When Judge Maass told members of the jury that they could hold the failure to produce evidence against Morgan Stanley, the instruction no doubt helped Mr. Perelman's lawyers considerably in their arguments while also contributing to the jury's decision.
But transcripts and court filings do not explain how the document production fiasco led to a conflict between the company and its former lawyers. Mark Hansen, one of Morgan Stanley's new lawyers, insisted in court that the conflict was self-evident once the firm told Kirkland & Ellis that it could face a malpractice claim.
''When a client puts a lawyer on notice like that, it creates the conflict because the issue is the relationship between the lawyer and client,'' Mr. Hansen said.
The judge was unconvinced. ''None of that is relevant,'' she said in court ''unless and until I know what it is Morgan Stanley believes Kirkland & Ellis did that was legal malpractice. And so far you have been unwilling to disclose that.''
Mr. Hansen responded simply, ''We can't waive the privilege.''
A dispute like the one involving Morgan Stanley and Kirkland & Ellis is highly unusual. A typical conflict of interest for a law firm involves a current client whose interests run counter to those of a past, present or future client or a lawyer representing both parties to the same dispute.
When the client's interests and the lawyer's interests are at odds, ''you can't do the representation,'' said Bruce Green, a professor at the Fordham University School of Law, who teaches legal ethics. ''There're no hard and fast rules.''
It could be, for example, that a law firm in Kirkland & Ellis's position might be more cautious in representing its client after being told of a potential malpractice claim. If there is a malpractice suit filed by Morgan Stanley, eventually many of the details will become public. For now, Mr. Green said, ''It's hard to say without knowing all the facts.''
Copyright 2005 The New York Times Company | Permissions | Privacy Policy
posted by Eastlaw @ 5:10 AM
0 Comments:
Post a Comment
<< Home