June 13: Going Off the Rails II

About a million years ago now, I was involved in a lawsuit that, I didn’t know then, was a precursor to a huge nationwide scandal: remember when all the savings and loans failed in the late 1980’s? The Arizona-based Keating scandal that John McCain got involved in?

My case was instead pretty funny. A savings and loan in eastern North Carolina failed—I don’t even remember the name of it. Maybe North State S&L? There’s an opinion from the North Carolina Court of Appeals out there with my name on it, so theoretically someone could find it, but who cares?

The plaintiff was some poor schlub, probably an investor who lost a lot of money on the bank’s stock when it failed. The defendants—one of whom I was of course representing—were bank directors, officers, accountants, who knows. This was over 30 years ago, and, while I am one of those lawyers who can remember war stories, I’m not so obsessed as to recall all the details, as you’re rapidly discovering.

I can barely describe what happened with a straight face: all of those defendants had to hire lawyers, of course, and we all descended on Raleigh early on in the case to take informal discovery. We all must have signed something that promised that this was all confidential, that no one waived attorney-client privilege, etc. And then all of the defendants came in, one by one, to a conference room in a local law firm to be interviewed by the defense attorneys. The atmosphere was relaxed, there were no court reporters, no one was under oath. Do you wonder what the point was?

The point was to find out what everyone knew, to expose any weaknesses, I suppose. Except…if your guy was a bad guy, wouldn’t you get him to keep his mouth shut? Otherwise, wouldn’t all the other defendants point fingers at your guy?

Ours was a bank director named Franklin Bland. He was round and rolly-poly and sweet, and, though Nancy never met him, she acceded to my nickname for him: Fuzzy Bear Bland. He wore thick blue socks that, near the top, revealed a ring of yellow. His suit was unvaryingly dark blue. His face was thick and oily and pleasantly smiling. When you asked him something in a leading way (“And you never made any fraudulent loans, right?”), he’d answer “That’s exACTly ragghht.”

We were there a week. I had accompanied a partner, Dan Fouts, now gone to his reward. He represented American Tobacco in employment matters, was a general in the Air Force Reserve, had a “Thank You For Smoking” sign in his office, and at 5:30 every day would walk around to see who was still in his or her office. If you were packing up to leave, he’d ask, “Working only half a day?” I believe that’s all you need to know. We also stopped at a liquor store on the way out of town, of course. I was relieved.

Imagine at least ten defendants, times two lawyers, probably, at who knows what per hour. This was 1986 or so in North Carolina, so it wasn’t so bad in 1986 dollars, but today…I am reliably informed by Greensboro counsel that two lawyers, a partner and an associate, would be glad to work for you for a combined $700 an hour, and, at that, I’m knocking at least $100 off of what my source told me just to be safe.

So multiply that by ten teams, times eight hours a day (plus whatever the lawyers felt like sneaking onto their timesheets) times five days looks something like $280,000 for the week’s work. Plus hotel rooms and meals and travel expenses for all of these people (I guess I could say men; I don’t remember a woman in the room.) That’s extremely conservative. Probably a good number of insurance companies were splitting these fees, but still.

The Raleigh hotel where Dan and I stayed had a really delicious morning cinnamon-bun type thing on steroids that other lawyers strongly counselled us to try (having stayed there during other boondoggles). So there was that, anyway.

Let’s end this story quickly but with one footnote, see below.* We filed a motion to dismiss the lawsuit without any hearings or anything at all on the basis that the complaint was defective, like a bad lawnmower. The court didn’t really even need to know any real facts, was our theory.

People, I am here to tell you that my brief formed the basis for the court’s opinion dismissing the case. Under the business judgment rule, I argued, the plaintiff can’t just plead that the defendants behaved negligently, or made bad deals, or being were simply stupid businessmen (again, no women directors here!). They had to plead that in making bad loans the defendants had committed fraud or something worse, and they hadn’t pleaded it.

We won. Even Nancy’s law firm, which thought I was stupid, congratulated me. Years later, for some reason, I went back and looked at the complaint that the plaintiff had filed. There it was, on the bottom of the first page: defendants had acted fraudulently. Oh. Guess I missed that.

So did the court, the other defendants’ lawyers, and, for god’s sake, even the plaintiff’s own lawyers. Justice was not done because we were all, including the plaintiffs who ought to have been looking everything over desperately, missing one detail.

Why spend hundreds of thousands of dollars on informal discovery when no one can pay attention to what the complaint says in the first place? None of these people was even under oath. What, really, was the point? As I said in the previous post, we’re not very bright, are we?

*Peyton Alsobrook (not his real name) was one of the defendants’ lawyers; he was a partner in Nancy’s law firm, and died recently. Nancy and I have always joked about how at one point someone had posited the possibility that the plaintiff would try to turn the suit into a class action. Alsobrook put his feet up on the table, and, his voice gravelly and deep, and his accent impenetrable, scoffed, “Mmmrrrmmmmrrmm class action discovery mmmrrrrmmmm.” I don’t know what he said, but he sounded confident and dismissive.

There’s a story about him; I hope it’s not apocryphal. He played on the offensive line for Wake Forest’s football team. During his first game, he was going all out, blasting away at his opponent. It may have been Virginia; I hope so. Anyway the fellow he was trying to best got up at one point and said, “We’re going to be out here doing this all afternoon. Are you sure you want to keep going at it this way?” I trust you can see how this anecdote is not irrelevant to our theme.