New Legal Strategy: Show your Hand Early

The Globe and Mail
By Jacquie McNish
March 1, 2006

When Biovail Corp. launched its high-stakes legal battle against one of Wall Street's most powerful hedge funds last week, it also took a run at conventional litigation practices.

Lawsuits are typically kick-started when a statement of claim, or pleading, is filed in court outlining the legal basis for allegations against defendants.

Typically, these pleadings are supposed to contain concise factual statements and legal conclusions that define the course for future evidence gathering and courtroom arguments.

But there was nothing typical about the lawsuit filed in a New Jersey court last week by Biovail, which alleges that hedge fund goliath SAC Capital Management LLC had engaged in a conspiracy with stock analysts to drive down the drug maker's share price. SAC Capital and other defendants deny the allegations.

Biovail's statement of claim was the culmination of 15 months of private sleuthing by a large team of investigators and lawyers and an unusual advance media campaign spearheaded by Marc Kasowitz, one of the most prominent and feared litigators in the United States.

Aggressive lawyers such as Mr. Kasowitz are shaking up accepted litigation practices and sparking a debate about how far counsel should go to represent their clients in the court of public opinion before a case goes, if ever, to court.

Founder of Kasowitz Benson Torres & Friedman LLP, Mr. Kasowitz has attracted notoriety for controversial defences of such clients as a cigarette maker Liggett Group Inc. and more recently for launching a $5-billion (U.S.) libel lawsuit on behalf of business celebrity Donald Trump against a prominent business author.

The New York-based lawyer won't talk publicly about the specifics of the Biovail case -- "I'll save my comments on that case for the courts."

When asked to comment about the intense preparation leading up to lawsuit, he issued the following statement through a spokesman: "It's important to establish the credibility of your claim. It's important to be clear about what you're claiming and the basis behind it. And it's important to be as detailed as you can possibly be."

For Biovail, Mr. Kasowitz's team devoted enormous resources to canvassing other vulnerable companies that had come under negative scrutiny from analysts named in last week's lawsuit. The group also trolled through mountains of data available through other court cases involving the targeted defendants.

The outcome was Biovail's unusually lengthy 90-page statement of claim that was jam-packed with confidential e-mails, corporate documents and witness accounts of SAC Capital's relations with a handful of analysts who covered Biovail.

Traditionally, litigators avoid larding statements of claim with evidence for the simple reason that it can fall apart in court and potentially undermine a lawsuit's credibility in the eyes of a judge or jury.

Lawyers in the U.S. and more recently in Canada are increasingly spending small fortunes and months of work before lawsuits are even launched to collect often-embarrassing, private e-mails or witness statements that attract media attention and put defendants on the defensive.

Not everyone agrees with the approach.

"The role of lawyers is changing," said prominent Toronto litigator Alan Lenczner. "There is a diminishment of professionalism because you are no longer just being an advocate in the courtrooms. Lawyers are being asked to defend the character of their clients through publicity and lobbying. They are becoming promoters."

In Biovail's case, Mr. Kasowitz's careful orchestration of media coverage marked one of the drug maker's few public relations wins since it was targeted by short sellers as a vulnerable company in 2003.

Mr. Kasowitz's apparent strategy was to get as much of a jump as he could with evidence and media coverage before its powerful opponent, SAC Capital, had a chance to respond. Before most of the defendants could even get their hands on Biovail's lawsuit, which was filed minutes before the New Jersey court closed on Wednesday, prominent newspapers in Canada and the United States were preparing next day stories about the legal assault.

The media was ahead of the defendants, because Biovail's public relations consultants Fleishman-Hillard Inc. had invited selected journalists from Canadian, U.S. and British newspapers to visit a war room in Mr. Kasowitz's New York offices to be briefed privately about the lawsuit.

More than a few litigators in Canada and the United States have learned that the quickest way to gain media attention is by peppering statements of claim with sensational e-mail or eyewitness accounts.

Canadian Imperial Bank of Commerce dealt a huge public relations blow to a new competitor early last year when it filed a motion in the Ontario Superior Court, alleging that six former senior executives improperly recruited bank employees to their fledgling company, Genuity Capital Markets.

Technically, CIBC was seeking a court order to preserve the former employees' electronic communications and BlackBerry e-mails, but what got front-page attention were revealing e-mails from departed bank employees bragging in the primitive vernacular of Bay Street about their ambitions for Genuity.

"It gonna work, be big and tons of fun and moula," one former bank employee said in an e-mail. The case continues.

Evidence from insiders was also a powerful weapon for New York class-action specialist Bernstein Litowitz Berger & Grossmann LLP when it launched a shareholder suit in 2004 against Nortel Networks Corp. for allegedly publishing misleading financial statements.

The 105-page statement of claim cited first-person accounts from nearly a dozen unidentified former Nortel employees describing the company's alleged "padding" techniques to mask its true financial condition. The investors struck a preliminary deal last month that calls for Nortel to pay about $2.4-billion in cash and stock.

 

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