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DealBook: More Law Firms Raid Competitors to Poach Rainmakers

July 6, 2011 by Leave a Comment

Irving H. PicardBrendan McDermid/ReutersIrving H. Picard.

The job of unwinding Bernard L. Madoff’s huge fraud and recovering money for its victims has been lucrative, reaping hundreds of millions of dollars in legal fees. Late last year, a New Jersey law firm tried to poach the legal team handling that assignment.

It was an audacious move that would have transformed the New Jersey firm, Greenbaum Rowe Smith Davis, giving it a powerful presence in New York and the enormous stream of legal fees being generated by the Madoff litigation.

Irving H. Picard, the court-appointed Madoff trustee, and his chief counsel, David Sheehan, carefully considered leaving their firm, Baker Hostetler, but decided to stay after additional resources were committed to their group.

Though the deal never materialized, the dalliance highlights the intense demand at corporate law firms for lawyers with large, established books of business. While lateral hiring is nothing new, some of the country’s biggest law firms are recruiting top producers more aggressively than ever and offering record pay packages with multiyear guarantees, legal industry specialists say.

“We have entered the era of the superstar megarainmaker,” said Peter Zeughauser of the Zeughauser Group, a law firm consultancy.

This year, DLA Piper, a giant law firm at the forefront of this trend, hired James D. Wareham, a litigator in Washington who represents big corporations including Capital One and Chevron. DLA Piper is paying him more than $5 million a year, a substantial increase from his salary at his former firm, Paul, Hastings, Janofsky Walker.

Last month, O’Melveny Myers lost nine corporate partners that have Apollo Global Management, the large private equity firm, as a prized client. Seven of them left for Paul, Weiss, Rifkind, Wharton Garrison; two went to Weil Gotshal Manges.

Latham Watkins recently picked off seven partners from three competitors, including Proskauer Rose and WilmerHale, to establish an office in Boston, an important location for profitable legal work in the technology and life sciences industries.

The competition for top legal talent has caused the spread between the highest-paid partners and other partners at law firms to widen in recent years. The average partner at a United States firm earns $640,000 a year, according to a recent compensation study by Major, Lindsey Africa, a legal recruiting firm. Top producers at some of the biggest firms are paid as much as 10 times what an average partner at their firm earns, roughly double the gap of a decade ago, legal industry consultants say.

A number of factors are driving ever-higher compensation for top producers. A persistently weak economy continues to put pressure on the revenues of these firms, making them desperate to capture business that can generate big fees. Large corporations also continue to reduce the number of outside law firms they use, a trend that has forced firms to pay up for teams of lawyers in important practice areas where they lack a specialty.

Some corporate law firms, like Cleary Gottlieb Steen Hamilton and Cravath Swaine Moore, eschew the star system and maintain a more traditional partnership culture with compensation in a more narrow range. Still, the free-agent market for rainmakers has altered the corporate law landscape.

“We’re increasingly seeing big firms pay up for large teams of lawyers built around a rainmaker, or a big client, or a complex case,” said Jeffrey A. Lowe, a managing partner at Major, Lindsey Africa. “You could certainly see the appeal that the Madoff trustee and his team of lawyers would have to another firm.”

The Madoff trustee litigation has been a boon for Baker Hostetler, a 740-lawyer Cleveland-based firm. Mr. Picard and his team have filed more than a thousand lawsuits seeking to recover money for victims who sustained losses in the fraud. Among the defendants are more than a dozen banks, including JPMorgan Chase, and wealthy investors like the Wilpon family, which owns the New York Mets. In some lawsuits, Mr. Picard is seeking to recover cash withdrawn from the Ponzi scheme before its collapse; in others, he has asked for damages from defendants who he says knew or should have known about the fraud.

So far, Mr. Picard has recovered about $10 billion in settlements and asset sales, far more than what legal specialists had expected.

It has been a hugely profitable assignment, having brought in about $180 million in legal fees for Baker Hostetler. The firm is expected to receive roughly $603 million more for its work from 2011 to 2014, according to correspondence from the Securities Investor Protection Corporation, a private nonprofit entity backed by broker-dealers, which pays Baker Hostetler’s fees.

Mr. Picard, as trustee, has been paid $4.3 million through January, according to court records. He stands to make an additional $12.5 million over the next three years, the SIPC letter said.

The financial arrangement that Mr. Picard and Mr. Sheehan have with Baker Hostetler is unclear.

The Madoff case was a major driver in increasing revenue at Baker Hostetler by 17 percent last year, the third-largest increase among the country’s 100 largest law firms, according to The American Lawyer magazine. Since receiving the assignment, Baker Hostetler’s New York office, where Mr. Picard and Mr. Sheehan are based, has doubled to about 150 lawyers.

Though the Madoff litigation has brought many dollars and much prominence to Baker Hostetler, not every lawyer at the firm is thrilled.

A number of Baker Hostetler lawyers have complained that too many resources are being devoted to the Madoff case at the expense of the rest of the firm’s practice groups.

“We’re now the Madoff firm, just go to our Web site and take a look,” said a lawyer at Baker Hostetler who spoke only on the condition of anonymity because he was not authorized to speak publicly. “All you’ll see is Madoff, Madoff, Madoff.”

(While the firm trumpets the Madoff work on its Web site, the site contains smaller reports on other assignments.)

Another concern is a conflict-of-interest issue: Baker Hostetler would not represent many large banks and wealthy families because they were defendants in Madoff lawsuits. This would also make it a challenge for the Madoff team to join another large national firm with clients, or prospective clients, that have been sued by the trustee.

Last year Mr. Sheehan began discussing the possibility of leaving Baker Hostetler with Paul Rowe, the chairman of Greenbaum Rowe. It would have been a good fit. Joining Greenbaum Rowe would allow the Madoff team to operate on its own from New York with the backing of a 100-lawyer firm based in Iselin, N.J., best known for its litigation practices.

Mr. Rowe declined to comment.

Talks advanced far enough along that Greenbaum Rowe had secured two floors of empty space at 666 Fifth Avenue. But after discussions with Baker Hostetler management, Mr. Picard and Mr. Sheehan stayed put.

People briefed on the decision say that the firm did not increase their compensation, but instead devoted more resources to the Madoff litigation.

“The trustee and his counsel are committed to Baker Hostetler and look forward to the continued success that the firm’s legal team has achieved on the Madoff matter,” a spokesman for the firm said.

Article source: http://feeds.nytimes.com/click.phdo?i=7f2a206636462116630702bc455bc2f8

Filed Under: Business News Tagged With: , ,

Drug Makers’ Feared Enemy Switches Sides, as Their Lawyer

June 5, 2011 by Leave a Comment

He racked up numerous convictions and mega-settlements in nearly a quarter-century, using whistle-blowers and secret grand juries to pressure major pharmaceutical and health companies into ending illegal practices like kickbacks to doctors and misuse of blockbuster drugs.

Once described as a cross between a firebrand preacher and a charismatic litigator, Mr. Loucks burnished a reputation aptly captured in a Fortune magazine headline: “Why Do Drug Companies Fear This Man? Maybe because he’s declared all-out war on cheats in the drug industry.”

But a year and a half ago, Mr. Loucks, a Republican, left the United States attorney’s office in Boston after he was passed over for the top post and President Obama appointed a Democrat. Instead, Mr. Loucks joined Skadden, Arps last July, and has startled former allies by emerging in recent months as zealous a corporate defender as he was a prosecutor, complete with proposals seeking more lenient treatment for the medical companies he once vilified.

In a six-page memo last month to clients in his portfolio, which may include some of the very same corporations he prosecuted repeatedly, Mr. Loucks bemoaned strategies he had embraced.

“The government and the whistle-blower have an advantage,” he wrote, complaining that federal investigators were now using the law unfairly. “While prosecutors often assert the company has engaged in ‘serious’ misconduct, they keep the company in the dark, often for years, as to the specific allegations.”

Those who have known him are quick to recall that his crowning achievement was a $2.3 billion settlement against Pfizer that capped a four-year secret investigation.

“We’re all disappointed that he’s gone over to the dark side because it seemed that he was a good prosecutor,” said Shelley R. Slade, a whistle-blowers’ lawyer in Washington and a former senior counsel for health care fraud at the Justice Department.

“I looked upon it with sadness,” Patrick Burns, spokesman for the whistle-blower advocacy group Taxpayers Against Fraud, said of Mr. Loucks’ change. “He’s a good and honorable person. He did great work in the Boston office. He’s a good lawyer. It’s just too bad.”

Federal ethics rules prohibited Mr. Loucks from any dealings with the United States attorney’s office in Boston for a year after his resignation, and he can never be involved in cases he investigated directly. But he is not barred from representing clients he once prosecuted on other matters, and his law firm’s roster includes some of the biggest companies he once investigated, including Pfizer, Merck, Schering-Plough, Bristol-Myers Squibb and Medtronic.

He defends his newfound friendship with former foes, and notes that he’s still wearing cowboy boots native to his Oklahoma childhood even though he’s now working in the white-collar division of a prestigious law firm.

“While everyone calls it ‘the other side,’ I’m doing the same thing I’ve always done, which is zealously representing my clients,” he said.

And while he used to call some of those people’s actions “evil,” today he argues that drug and medical device companies are making strides in complying with federal billing, fraud and kickback laws. “They make products that have huge benefits to a number of people,” he said. Skadden, a 2,000-lawyer firm, has made several hires in recent years to amplify its health care practice.

In interviews and a lengthy e-mail exchange, Mr. Loucks said his views on the whistle-blower law had evolved.

The False Claims Act, with its triple damages, has been the government’s most powerful weapon against health care fraud since Congress in 1986 increased the rewards for whistle-blowers. Since then, taxpayers have recovered an estimated $28 billion from medical companies.

As a federal prosecutor in Boston, Mr. Loucks created a health care fraud unit and used the law, as well as the tools of secrecy and surprise, to reap major awards. The unit’s victories are renowned, starting with an $875 million payment in 2001 by TAP Pharmaceuticals. Whistle-blowers shared $95 million in that case, alerting companies and informants to the stakes involved.

For years, Mr. Loucks has argued that whistle-blowers are paid far much in health care fraud cases — bounties up to 30 percent, totaling $650 million in just the last two years, he said. These people would blow the whistle for less, he argued both inside the prosecutor’s office and more recently in a paper titled “the Great American Giveaway.” While that hostility toward what he considers the greed of some whistle-blowers is old news, Mr. Loucks’ views on unsealing their complaints are new.

In his May 12 memo to clients, Mr. Loucks urged some companies to press judges to unseal complaints more quickly. That way, he says, they can learn the scope of complaints sooner, identify witnesses and fight back harder.

“If Mike was still with the Justice Department, he could give you 10 reasons why this is a bad idea,” said Suzanne E. Durrell, a whistle-blowers’ lawyer in Boston who worked with Mr. Loucks when she was chief of the civil division for the United States attorney in Massachusetts.

Mr. Loucks says more openness would let companies clean up their own acts, even if it meant adverse publicity.

He points to new statistics that he says support his argument. The Justice Department reported to Congress that 885 False Claims Act cases involving health care fraud were pending under seal at the beginning of this year, with only about 200 prosecutors to juggle them. On average, a case was sealed for more than a year, and some much longer.

“That the government doesn’t have adequate resources to handle the cases is not a good cause to keep them under seal,” Mr. Loucks said in an interview, comparing it to a sports game where only one team is allowed to try to score. In these cases, that would now be his former team.

“I knew what I was doing on behalf of the government,” he said. “I don’t know if lawyers on the other side felt they were not able to adequately represent their clients while the case was under seal.”

Nicholas C. Theodorou, chairman of Foley Hoag’s business crimes defense group in Boston, said Mr. Loucks’ argument made sense from a corporate defense standpoint, and possibly would sit well with some federal judges who have questioned why cases remain under seal so long.

For his part, Mr. Loucks uses a baseball reference. Johnny Damon left his beloved Boston Red Sox in late 2005 to sign with “the evil empire, the New York Yankees,” Mr. Loucks said. Both teams won World Series with help from Mr. Damon.

Asked whether the “evil empire” analogy fit the Justice Department or Skadden, Mr. Loucks said, “One man’s evil empire is another’s home team.”

Article source: http://feeds.nytimes.com/click.phdo?i=30e0fc3bd7d48c07cb580939a795e09b

Filed Under: Business News Tagged With: , ,

Drug Makers’ Feared Enemy Turns Tables as Their Lawyer

June 4, 2011 by Leave a Comment

He racked up numerous convictions and mega-settlements in nearly a quarter-century, using whistle-blowers and secret grand juries to pressure major pharmaceutical and health companies into ending illegal practices like kickbacks to doctors and misuse of blockbuster drugs.

Once described as a cross between a firebrand preacher and a charismatic litigator, Mr. Loucks burnished a reputation aptly captured in a Fortune magazine headline: “Why Do Drug Companies Fear This Man? Maybe because he’s declared all-out war on cheats in the drug industry.”

But a year and a half ago, Mr. Loucks, a Republican, left the United States attorney’s office in Boston after he was passed over for the top post and President Obama appointed a Democrat. Instead, Mr. Loucks joined Skadden, Arps last July, and has startled former allies by emerging in recent months as zealous a corporate defender as he was a prosecutor, complete with proposals seeking more lenient treatment for the medical companies he once vilified.

In a six-page memo last month to clients in his portfolio, which may include some of the very same corporations he prosecuted repeatedly, Mr. Loucks bemoaned strategies he had embraced.

“The government and the whistle-blower have an advantage,” he wrote, complaining that federal investigators were now using the law unfairly. “While prosecutors often assert the company has engaged in ‘serious’ misconduct, they keep the company in the dark, often for years, as to the specific allegations.”

Those who have known him are quick to recall that his crowning achievement was a $2.3 billion settlement against Pfizer that capped a four-year secret investigation.

“We’re all disappointed that he’s gone over to the dark side because it seemed that he was a good prosecutor,” said Shelley R. Slade, a whistle-blowers’ lawyer in Washington and a former senior counsel for health care fraud at the Justice Department.

“I looked upon it with sadness,” Patrick Burns, spokesman for the whistle-blower advocacy group Taxpayers Against Fraud, said of Mr. Loucks’ change. “He’s a good and honorable person. He did great work in the Boston office. He’s a good lawyer. It’s just too bad.”

Federal ethics rules prohibited Mr. Loucks from any dealings with the United States attorney’s office in Boston for a year after his resignation, and he can never be involved in cases he investigated directly. But he is not barred from representing clients he once prosecuted on other matters, and his law firm’s roster includes some of the biggest companies he once investigated, including Pfizer, Merck, Schering-Plough, Bristol-Myers Squibb and Medtronic.

He defends his newfound friendship with former foes, and notes that he’s still wearing cowboy boots native to his Oklahoma childhood even though he’s now working in the white-collar division of a prestigious law firm.

“While everyone calls it ‘the other side,’ I’m doing the same thing I’ve always done, which is zealously representing my clients,” he said.

And while he used to call some of those people’s actions “evil,” today he argues that drug and medical device companies are making strides in complying with federal billing, fraud and kickback laws. “They make products that have huge benefits to a number of people,” he said. Skadden, a 2,000-lawyer firm, has made several hires in recent years to amplify its health care practice.

In interviews and a lengthy e-mail exchange, Mr. Loucks said his views on the whistle-blower law had evolved.

The False Claims Act, with its triple damages, has been the government’s most powerful weapon against health care fraud since Congress in 1986 increased the rewards for whistle-blowers. Since then, taxpayers have recovered an estimated $28 billion from drug and medical companies.

As a federal prosecutor in Boston, Mr. Loucks created a health care fraud unit and used the law, as well as the tools of secrecy and surprise, to reap major awards. The unit’s victories are renowned, starting with an $875 million payment in 2001 by TAP Pharmaceuticals. Whistle-blowers shared $95 million in that case, alerting companies and informants to the stakes involved.

For years, Mr. Loucks has argued that whistle-blowers are paid far too much in health care fraud cases — bounties up to 30 percent, totaling $650 million in just the last two years, he said. These people would blow the whistle for much less money, he argued both inside the prosecutor’s office and more recently in a paper titled “the Great American Giveaway.” While that hostility toward what he considers the greed of some whistle-blowers is old news, Mr. Loucks’ views on unsealing their complaints are new.

In his May 12 memo to clients, Mr. Loucks urged some companies to press judges to unseal complaints more quickly. That way, he says, they can learn the scope of complaints sooner, identify witnesses and fight back harder.

“If Mike was still with the Justice Department, he could give you 10 reasons why this is a bad idea,” said Suzanne E. Durrell, a whistle-blowers’ lawyer in Boston who worked with Mr. Loucks for a decade when she was chief of the civil division for the United States attorney in Massachusetts.

Mr. Loucks says more openness would let companies clean up their own acts, even if it meant adverse publicity.

He points to new statistics that he says support his argument. The Justice Department reported to Congress that 885 False Claims Act cases involving health care fraud were pending under seal at the beginning of this year, with only about 200 prosecutors to juggle them. On average, a case was sealed for more than a year, and some much longer.

“That the government doesn’t have adequate resources to handle the cases is not a good cause to keep them under seal,” Mr. Loucks said in an interview, comparing it to a sports game where only one team is allowed to try to score. In these cases, that would now be his former team.

“I knew what I was doing on behalf of the government,” he said. “I don’t know if lawyers on the other side felt they were not able to adequately represent their clients while the case was under seal.”

Nicholas C. Theodorou, chairman of Foley Hoag’s business crimes defense group in Boston, said Mr. Loucks’ argument made sense from a corporate defense standpoint, and possibly would sit well with some federal judges who have questioned why cases remain under seal so long.

For his part, Mr. Loucks uses a baseball reference to explain his switching sides. Johnny Damon left his beloved Boston Red Sox in late 2005 to sign with “the evil empire, the New York Yankees,” Mr. Loucks said. Both teams won World Series with help from Mr. Damon.

Asked whether the “evil empire” analogy fit the Justice Department or Skadden, Mr. Loucks said, “One man’s evil empire is another’s home team.”

Article source: http://feeds.nytimes.com/click.phdo?i=30e0fc3bd7d48c07cb580939a795e09b

Filed Under: Business News Tagged With: , ,