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Assault On The Vault Firms Uniting Against Uncle Sam LEGAL TIMES - WEEK OF APRIL 19, 1999 By: Carrie Johnson Winstar: In the Plaintiffs' War Room Glendale Federal's $909 million verdict against the government earlier this month sent an unambiguous message: Many of the financial institutions and millionaire investors burned by the savings-and-loan bailout in the 1980s are poised to now make the federal government pay a heavy price. But while the California bank's April 9 victory in the U.S. Court of Federal Claims received wide notice, little attention has been paid to a key factor in the bank's success: the sophisticated collaboration among lawyers representing plaintiffs in Glendale and about 120 other related cases. For 31/2 years, attorneys from some of Washington's biggest firms--and smaller boutiques dotted across the country--have been sharing trial strategies, out-of-pocket expenses, and even office space in a combined attack against a common enemy: the federal government. The cases are turning the usual world of corporate litigation on its head, with big corporate law firms modeling their collaborative approach on that normally used by conventional plaintiffs lawyers in big class actions. The group's unofficial headquarters is the offices of Arnold & Porter, the city's third largest law firm. Arnold & Porter administers operating accounts and a fax service that shoots out an inch-thick pile of documents each week to the 70-odd lawyers on the mailing list. "We share our thoughts and theories and other work product among ourselves to be sure there are no weak links in our phalanx, " says Charles Cooper of D.C.'s Cooper, Carvin & Rosenthal and the attorney who brought one of the first such cases in the Court of Federal Claims. For Cooper and the other plaintiffs lawyers, there's a lot at stake. Cooper's small firm now handles 17 suits and boasts $100 million in settlements garnered last year for two major institutional clients, the Winstar Corp. and the Statesman Group. The business clearly pays: The firm has grown from five to 17 lawyers in a few short years, with 20 more attorneys working on contract. The government has estimated that when the dust settles, it could be forced to hand over to banks and individual investors $30 billion to $35 billion. The suits, which make up nearly 10 percent of the active docket at the Federal Claims Court, are collectively known as "Winstar" matters, after a landmark 1996 U.S. Supreme Court decision in United States v. Winstar Corp. There, the high court ruled 7-2 that the government could be liable for breaching its contracts with mostly wealthy investors it had enticed to help bail out failing savings and loans in the 1980s. Many of the contracts included lucrative tax breaks or other sweeteners, which Congress revoked in 1989 with the Financial Institutions Reform, Recovery, and Enforcement Act. As a result, many of the sickly thrifts folded, and the investors suffered huge financial losses. The Supreme Court's Winstar decision stood for the idea that the government is responsible for the financial ramifications of its policies. And many plaintiffs lawyers are trying to take it farther than the S& L debacle. They have filed suit in nuclear regulatory, housing, and a host of other arenas where the government is alleged to have broken its promises or changed the rules on businesses midstream. Most of the law firms that have a hand in the Winstar litigation are taking part in the new wave of cases. And Cooper, in an interview, hints that yet another industry--telecommunications--is developing a claim in keeping with the bank suits. The litigation is the product of the revival of the so-called takings clause of the Fifth Amendment, which holds that the government must compensate citizens when it deprives them of their property. While it traditionally was applied in cases of condemnation or eminent domain, takings suits have become an increasingly popular response to environmental and other restrictions that impinge on the use--and value-- of private property. As an official in the Reagan Justice Department, Cooper was instrumental in making the government responsive to takings claims and successfully translated his expertise into a lucrative private practice. Lawyers in the new arenas are not yet as organized as the Winstar team, but Arnold & Porter associate Edward Sisson, who manages the "virtual clerk's office" for the banking plaintiffs, believes the strategy would work well in other contexts. After all, he says, the government has unlimited resources and a built-in ability to share information. "It's only fair that plaintiffs should be able to do the same, " he says, echoing a refrain common among the trial lawyers targeted by deep-pocketed corporate tort reformers. But not everyone is pleased with the prospect of high-priced lawyers collaborating with big business for an ongoing raid on the Treasury. As Joshua Schwartz, a law professor at George Washington University, told The New York Times last year, "There are a lot of lawyers who are now trying to shake the money tree." Teamwork The Winstar plaintiffs bar, now known as the plaintiffs' coordinating committee, first came together in October 1995, on the eve of the pivotal Supreme Court arguments in the case. The lawyers were concerned the high court would be flooded with amicus briefs from banks and big-name investors, so they collaborated on just two such memos that would reflect their arguments. After the high court victory, Chief Judge Loren Smith of the Court of Federal Claims moved to organize what had become a mammoth Winstar-related caseload. The caseload had nearly doubled as corporations and their lawyers saw green on the heels of the Supreme Court win. Judge Smith directed the plaintiffs; the Federal Deposit Insurance Corp., which in an ironic switch is partially backing the private sector, not its governmental cousins; and the Justice Department to form their own formal committees. Smith hoped the groups would find common issues in the 120 cases and thus speed up their resolution. The plaintiffs team ultimately appointed four leaders: Cooper and Steven Rosenthal of Cooper ; Melvin Garbow of Arnold & Porter; and Jerry Stouck of D.C.'s Spriggs & Hollingsworth. The 70-odd lawyers in the committee used to meet monthly, but now they mainly communicate by fax and phone. Sisson acts as the point man, keeping track of expenses for run of the mill services such as faxing or overnight mail. Some of the law firms also chip in to offset the cost of discovery materials--scanning and coding important depositions--and for the salary of Judge Smith's special master, William Schultz, which runs about $125, 000 a year. The plaintiffs pay about 40 percent of his salary, with the FDIC and Justice responsible for the rest. Sisson says the costs have totaled in the low hundreds of thousands since the group's inception. But, he notes, "The truth is, with 65 different firms, ultimately the cost each firm is bearing is pretty minimal." Especially when one considers the lineup of firms participating in the cases. The group of big corporate law firms with a piece of the action includes D.C.'s Patton Boggs; Jones, Day, Reavis & Pogue; Chicago's Kirkland & Ellis, Sidley & Austin, and McDermott, Will & Emery; Houston's Vinson & Elkins; and Kirkpatrick & Lockhart. "These are not your typical lineup of plaintiffs lawyers, " Cooper notes. That's not to mention the well-heeled clients. Cooper, for instance, handles cases for institutions like NationsBank, the Fleet Financial Group, the Ford Motor Co., and Ronald Perelman, magnate of the Revlon Corp. And Arnold & Porter represents companies controlled by Robert Bass, the Hyatt-owning Pritzker family, and New York real estate investor Alvin Dworman. According to three lawyers involved in the Winstar cases for years, most of the big firms are collecting their regular hourly fees (for partners, that can run up to $500 in D.C.'s legal market), sometimes with the prospect of a bonus for good performance. None of the three main firms involved in the Glendale suit--Kirkpatrick, Sidley, and Spriggs--is receiving a contingent fee. Lawyers involved in other Winstar cases, including those brought by small investors and defunct thrifts, are more likely to have a share in any potential windfall, according to the veteran attorneys. Two members of the coordinating group say they have not discussed whether they will be paid for administering the suits when the litigation is finally over. They say such a move is unlikely, because they are handling individual cases whose winnings will not be pooled into a common fund as happens in class actions. Still, their work is not without its rewards. Members of the committee arguably have access to the latest information in the Winstar circle, and more control over how the cases are handled. On the defense side, the Justice Department last year requested $64 million in additional funds to handle the stream of Winstar cases and now has about 40 lawyers working on the matters, according to Deputy Assistant Attorney General Stuart Schiffer. He's not surprised by the army of high-powered attorneys battling against the government. "It's not unusual when you have high-stakes cases, " says Schiffer, who heads the department's commercial litigation branch. "You frequently find that lawyers go where the need is." Reprinted with permission of Legal Times, 1730 M St., N.W., Suite 802, Washington, D.C. 20036 Phone: 202-457-0686 Copyright, Legal Times, 1999 |
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