Lessons Learned

More than half of U.S. companies had at least one trial last year. Of those cases 40 percent went to verdict. These findings from Fulbright & Jaworski's Second Annual Litigation Trends Survey explain the difficulty we had in choosing just five cases to highlight in our annual list of the most significant verdicts of the year. Luckily, with the help of some of the country's top litigators, we were able to narrow the list to a manageable, but diverse group.

Plaintiffs range from the eminently sympathetic--a 69-year-old wife and mother of three who died of a rare blood disorder--to the less downtrodden--a billionaire who sold his Florida mansion for $69 million in 2004. Damages range from absolutely nothing to absolutely outrageous. Jurisdictions range from New York's business-friendly courts to the dreaded Madison County, Ill. Some are high-profile; others got little media attention. Four are cautionary tales, and one is a victory worth noting.

Sure, New Year's resolutions have already been made (and, in many cases, already broken). But it's never too late to learn from the past and commit to doing things differently in the future. All of these verdicts hold important lessons for corporations and the lawyers that keep them out of trouble.

DiscoveryDishonesty

The Case:

Perelman v. Morgan Stanley

The Damage:

$1.45 billion in compensatory and punitive damages

The Lesson:

E-discovery is not to be taken lightly.

By now the story behind Perelman v. Morgan Stanley is a well-known one: Billionaire financier Ronald Perelman sold 82 percent of Coleman Inc. to Sunbeam Corp. in 1998 in exchange for $1.5 billion in cash and $680 million in Sunbeam stock. The Revlon chairman made this transaction after his investment banker, Morgan Stanley, convinced him that the once-troubled Sunbeam now had a bright financial future. Just three years later--much to Perelman's surprise--an accounting scandal at Sunbeam forced it to file for bankruptcy. His Sunbeam stock was rendered worthless.

"It was inconceivable to him and his advisers that Morgan Stanley would have been involved in advancing a fraudulent scheme," says Jack Scarola, a partner at Searcy Denney Scarola Barnhart & Shipley who represented Perelman.

Perelman sued Morgan Stanley in 2001, claiming his longtime investment banker had intentionally misled him about the financial stability of Sunbeam in order to seal a lucrative deal. (Morgan Stanley stood to gain nearly $33 million in fees from underwriting the Coleman-Sunbeam deal.) Four years later in May 2005, a jury in West Palm Beach, Fla., awarded Perelman $1.45 billion in compensatory and punitive damages.

The verdict could have been far different had Morgan Stanley complied with the plaintiff's requests--and Judge Elizabeth T. Maass' orders--for documents during discovery. Instead the company initially failed to hand over backup tapes containing thousands of e-mails potentially related to the case. Interpreting Morgan Stanley's actions as "willful and gross abuse of discovery obligations," a frustrated Judge Maass gave the jury an unusual--and highly controversial--instruction: Assume that Morgan Stanley colluded with Sunbeam to defraud Perelman and other investors. This spelled defeat for the investment firm, and set the stage for the massive verdict.

"This sends a very compelling message that corporate arrogance is simply not going to be tolerated by the civil justice system," Scarola says.

Judge Maass's pretrial ruling and the resulting verdict also send a message about the importance of retaining and being able to produce e-mails in litigation. More and more, courts are treating e-mail as "a window into the corporate consciousness," Scarola says. Morgan Stanley's fate was sealed, he adds, when "the electronic trail that existed in this case was obliterated."

General Counsel Donald Kempf retired from Morgan Stanley in June amid harsh criticism about how he handled the case.

"[The legal department] never should have stood silently by as the cover-up continued to grow in scope," Scarola says.

PollutedGround

The Case:

Ryan v. BP Amoco

The Damage:

$13.3 million in compensatory damages

The Lesson:

Get ready for the benzene frenzy.

When an Independence, Mo., jury delivered a multimillion-dollar verdict in the first of 25 benzene cases against BP Amoco in September 2005, plaintiffs and defense counsel both took notice.

Plaintiff Nancy Ryan lived just 500 feet from an Amoco-operated oil refinery in Sugar Creek, Mo., between 1956 and 1960. In the lawsuit, which Ryan filed three months before her death in November 2004, she blamed her rare blood disorder on leaky refinery tanks that allegedly allowed benzene-based products to seep into the ground and surface water around her home.

The refinery was torn down long ago, and BP Amoco argued at the trial that there was no scientific evidence linking the company's operations to Ryan's condition. The problem, though, was that the jury wasn't convinced, and dealt BP Amoco its first blow in what could be years of benzene-related litigation.

"This case really emphasized the importance of corporations communicating with their neighbors and other stakeholders once contamination becomes known," says David Allen, a partner at Akin Gump Strauss Hauer & Feld who handles toxic torts and products

liability cases.

Ryan also set the tone for mounting benzene cases across the country.

Benzene, a known carcinogen, is found in everything from gasoline to butter and is nearly ubiquitous in industrial settings. Litigation over exposure to the chemical has been going on for decades, but a recent spate of benzene lawsuits shows trial lawyers are looking to take the fight to the next level.

To be fair, Ryan is a bit different from many of the benzene cases coming down the road--the bulk of the litigation involves occupational exposure, not environmental claims. But the sheer size of the verdict and the jury's rejection of BP Amoco's "lack of scientific evidence" arguments are ominous signs for potential benzene defendants.

According to Allen, there's little agreement in the scientific community about the health risks of benzene, which could hurt or help defendants.

"The science is still evolving, and the studies are all over the map," he says.

Plaintiffs may be banking on two studies of Chinese workers from the National Cancer Institute that showed benzene, at certain levels, increased the subjects' risk of developing non-Hodgkins' lymphoma and blood diseases.

But corporations and corporate litigators are readying their defenses. An Associated Press story published in August 2005 revealed that a coalition of oil companies--including BP, ChevronTexaco, ConocoPhillips, ExxonMobil and Shell--had raised almost $27 million to fund its own benzene study in Shanghai. The research began in 2001, and the companies are expected to publish the findings in 2007. Meanwhile, corporate litigators have been sharing strategies in a series of benzene litigation conferences. Firms organized at least three such events in 2005, including one led by Allen.

ReformedCounty

The case:

King v. Bondex International, et al.

The Damage:

$50,000

The lesson:

Tort-reform campaigns can pay off--even in Madison County.

Madison County, Ill., has been called a "judicial hellhole," a "plaintiff's paradise" and "the jackpot jurisdiction." In 2003 it became home to the largest asbestos verdict in U.S. history when a jury awarded a plaintiff $250 million in damages in Whittington v. A.W. Chesterton. That same year, Madison County had more mesothelioma cases set for trial than any other jurisdiction in the country.

But last year's verdict in King v. Bondex--in which the damages awarded fell well below the plaintiff's request--shows a new Madison County: one that seems responsive to tort reform.

Willard King, a retired auto and farm equipment repairman who doctors diagnosed with mesothelioma in 2004, sued Bondex, Georgia-Pacific Corp., John Crane, RPM Inc. and Lynn Tractor and Equipment Co., claiming he developed the asbestos-related illness as a result of working with their products on the job and when he remodeled his home in the 1970s. Specifically, King noted that he used an asbestos-containing joint compound made by Bondex and Georgia-Pacific for his remodeling project. The defendants claimed King had never used their products. Even if he had, they argued, the asbestos found in their compounds wasn't the type that caused mesothelioma.

The parties selected jurors in February, but several delays meant the jury had to wait until May to hear the case. Meanwhile, a coalition of Illinois businesses and legal reform groups launched an aggressive public education effort. The U.S. Chamber of Commerce spearheaded the "Land of Lawsuits" campaign, complete with full-page newspaper ads, a Web site and town hall meetings.

The Chamber's efforts couldn't keep the jury from finding Bondex and RPM liable for King's asbestos-related illness in May 2005. But they may have had something to do with the jurors' unwillingness to award the plaintiff the $50 million his lawyers had suggested. Instead, they delivered a comparatively paltry $50,000 in damages.

After the case, one juror told the St. Louis Post-Dispatch she felt Madison County's image was at stake.

"I knew all about the bad reputation, and the other big verdict in the last trial," she said. "I am so tired of people saying we're the lawsuit capital of the United States."

It's comments like these that have defense counsel cheering.

"This is a significant verdict for corporate America," says George Talarico, a nationally recognized asbestos litigator at Thacher Proffitt & Wood. "[I]t shows that the outside political pressure of tort reform may in fact have an impact on jury verdicts against corporations."

And King wasn't just a fluke. One month later, a Madison County jury delivered a defense victory in Gudmundson v. General Electric, another asbestos case.

WTCFallout

The Case:

In Re: World Trade Center Bombing Litigation

The Damage:

Potentially $1.8 billion

The Lesson:

Failing to minimize the risk of a terrorist attack is not merely unwise, it's a major liability.

Most people did a double-take in October 2005 when they learned that a jury had found the Port Authority of New York and New Jersey--the owner and operator of the Twin Towers--68 percent liable for the Feb. 26, 1993, World Trade Center bombing that killed six and injured 1,000. The defendant's attorney, Marc Kasowitz, was no exception.

"To hold the Port Authority twice as liable as the terrorists for the 1993 bombing stands logic, rationality and reason on their heads," he told reporters shortly after the verdict.

Heard in the New York State Supreme Court by a six-person jury, this case represented a consolidation of 400 related claims filed almost 12 years ago by victims' families, those injured by the blast, as well as the businesses affected by the bombing.

The plaintiffs' argument centered on a 1985 report from the Port Authority's office of special planning, a taskforce meant to address potential terrorist threats to the World Trade Center. In its assessment the taskforce concluded, "A time-bomb-laden vehicle could be driven into the W.T.C. and parked in the public parking area. The driver would then exit via elevator into the W.T.C. and proceed with his business unnoticed. At a predetermined time, the bomb could be exploded in the basement. The amount of explosives used will determine the severity of damage to that area."

The report also made several recommendations about how to guard against such an attack, including closing off the garage altogether. Plaintiffs' counsel argued the Port Authority's failure to put these protective measures in place constituted negligence. The jury agreed.

"[This case] demonstrates beyond any doubt," says Paul Hanly, a partner at Hanly Conroy Bierstein & Sheridan, "that juries will hold the owners and operators of commercial office property responsible for any events that are reasonably foreseeable, even where the harm that is visited upon the property and its inhabitants is initiated by criminal activity."

Now that the jury has delivered a negligence verdict, the plaintiffs will pursue damages on an individual basis. In all, these claims could cost the Port Authority as much as $1.8 billion. A group of insurance companies that paid millions of dollars to policyholders for property damage, business interruption and other claims after the 1993 bombing are seeking $21 million alone.

Although both sides were expressly prohibited from mentioning the September 11 terrorist attack, Hanly predicts this verdict will have a profound effect on September 11 suits.

"It strongly suggests that a jury may well assess liability for the failure ?? 1/2 to remedy the known defective fireproofing on the structural steel, to enlarge and reinforce the means of egress and to implement a coordinated exit strategy of the entire complex, thereby affording more tenants precious additional time to escape," he says. "The failure to take these steps before and after '93 led, in a not insignificant way, to the extent of loss on 9/11."

Merck-yTerritory

The Cases:

Ernst v. Merck and Humeston v. Merck

The Damage:

Ernst: $236

million; Humeston: $0

The Lesson:

Tackling products liability litigation on a case-by-case basis can be a risky business.

Merck & Co. pulled Vioxx off the market in September 2004 after research showed it doubled patients' risk of heart attacks and strokes. Shortly thereafter, the company became the target of thousands of lawsuits alleging the company deliberately misled consumers about the drug's dangers--and the plaintiff pool is still growing.

Hoping to avoid spending billions of dollars to achieve a global settlement (as Wyeth has had to do with its Fen Phen litigation), Merck's legal department decided to fight each Vioxx case separately. Working on the assumption that many of the Vioxx claims were frivolous, the company took a gamble that this approach would ultimately minimize its losses.

Last year's divergent verdicts in Ernst v. Merck and Humeston v. Merck represent the potential risks and rewards inherent in such a strategy.

To say that the first Vioxx case went poorly for Merck would be a gross understatement. On Aug. 19, 2005, a Texas jury voted 10?? 1/2 2 to hold the drug maker responsible for the death of Robert C. Ernst, a 59-year-old triathlete who had been taking Vioxx for eight months when he died in his sleep of a heart arrhythmia. The jury concluded the arrhythmia was likely the result of a sudden heart attack caused by Vioxx and awarded Ryan's wife $236 million in compensatory and punitive damages. News outlets called the case "ominous" and estimated Merck's tab for Vioxx litigation could balloon to $50 billion.

But then came round two. Frederick Humeston, a postal worker from Boise, Idaho, claimed Vioxx caused the heart attack he suffered in 2001 at the age of 56. Merck argued Humeston's heart attack could have just as easily been the result of the plaintiff's weight, cholesterol, blood pressure and stress problems. On Nov. 3, 2005, the jury ruled in Merck's favor. Bolstered by the decision, Kenneth C. Frazier, Merck's senior vice president and general counsel, told reporters in a teleconference the company would continue to address the Vioxx litigation on a case-by-case basis.

"[T]here will be other Vioxx trials," he said, "and we will vigorously defend them one by one over the coming years."

Scott Winkelman, co-chair of Crowell & Moring's tort practice, says legal departments will have to decide for themselves whether this strategy makes sense for their companies.

"Litigators and in-house counsel across the country will have to assess the difference in these verdicts," he says, "and answer the question: 'In this type of serial litigation, which case will set the price for future claims?'"?

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