August 29, 2008 10:05 AM

THE AM LAW LITIGATION DAILY: August 29, 2008

Posted by Kirstin Maguire

Edited by Alison Frankel and Ben Hallman

LITIGATOR OF THE WEEK
Thomas Nolan of Skadden, Arps, Slate, Meagher & Flom
It isn't often that we pick a Litigator of the Week whose client was just ordered to pay $100 million in damages. But context is everything, especially in high-stakes commercial IP disputes.

Last month, a federal jury in Riverside California found that Nolan's client, MGA Entertainment, had infringed Mattel's copyright in manufacturing a popular line of big-headed dolls called Bratz. The jury determined that an MGA designer made the first drawings of the dolls that would become Bratz while still an employee at Mattel. The verdict seemed so momentous that the Litigation Daily named Mattel's lead lawyer, John Quinn of Quinn Emanuel Urquhart Oliver and Hedges, its Litigator of the Week when it came in. Quinn continued his winning ways when Nolan lost a motion to have the liability verdict thrown out after a juror's racist comments came to light.

In the second phase of the trial, Nolan told us, the question before the jury was complicated: Did MGA infringe Mattel's copyright on only the first version of the Bratz doll, which has long been off the market, or on all the editions of the doll that have followed? Quinn argued the latter, telling jurors that MGA and its chief executive owed Mattel as much as $2 billion.

Nolan, obviously, argued that the infringement was limited to those first, since-abandoned dolls. He told us that his strongest case to the jury was based on the copyright concept of "substantially similar." He explained: "We introduced 77 themes of dolls. If the dolls were similar, you would expect sales to be similar, but they weren't." Nolan asked jurors to award damages of about $30 million. Math isn't our strong suit, but even we can tell that $100 million is a lot closer to $30 million than it is to $2 billion.

What's more, Nolan told us that he expects the final judgment to be much less than $100 million. Jurors awarded damages on three separate claims against MGA, with the total adding up to $100 million. But Nolan says the claims were all based on the same conduct by his client. Under California tort law, he asserts, the court has the discretion to throw out multiple damage awards based on the same conduct, so Nolan intends to file post-trial motions asking Judge Larson to cut the jury's verdict. He estimates that the final number will be between $20 million and $40 million, which comes awfully close to what Mattel spent litigating the case. (The Litigation Daily has previously reported that Mattel spent $44 million in the first half of 2008 on legal fees for the Bratz case and a consumer class action.)

Nolan, a graduate of Loyola Law School and a former Los Angeles AUSA, said his client already regards the jury award as a victory and vindication. John Quinn told the Am Law Daily that he considered the verdict "mildly disappointing."

This is Skadden's second important success in the Bratz litigation. The first came at the beginning of the trial, when Quinn lawyers were aced out in the Great Bratz Hotel Fight. MGA's contract with the Mission Inn, the swankiest hotel in Riverside, California, specified that no Quinn attorneys be permitted to stay at the hotel for the duration of the trial. Quinn attorneys were forced to slum it at the Mariott. "Nice, but not as nice as the Mission Inn," Nolan said, in an appropriately Bratz-y comment.

UPDATE We received the following note from Mattel lead trial counsel John Quinn today at 1:40 p.m. in response to the above item:

Your piece today about the Bratz trial leaves out the single most important fact about the jury's verdict: the jury FOUND infringement. That means we will seek to enjoin any further sales of Bratz dolls by MGA. MGA will tell you that this finding only applied to the "first generation" Bratz dolls. When they tell you that, ask them where that is in the verdict. Since your piece discussed the infringement issue, it is surprising to me that you did not note the jury's express finding on the question directed to them on infringement.

WHITE-COLLAR
It's a Twofer: Second Circuit Upholds Kaplan KPMG Dismissals; DOJ Officially Retreats on Attorney-Client Waivers
On the same day that the U.S. Court of Appeals for the Second Circuit upheld Manhattan federal district court judge Lewis Kaplan's dismissal of indictments against 13 KPMG defendants, the Justice Department debuted new standards for the investigation and prosecution of corporate crimes that take into account the constitutional concerns that led to the KPMG dismissals.

Deputy U.S. attorney general Mark Filip announced the new rules yesterday morning at the New York Stock Exchange. The revised guidelines--we can't resist calling them The Filip Memo, though Filip didn't present them as such--forbid federal prosecutors from pressuring corporations and their employees to waive certain protections during federal investigations.

That's a big change from the situation KPMG faced in the government's biggest-ever tax fraud investigation, which came in the wake of corporate fraud scandals at Enron and WorldCom. Manhattan federal prosecutors made it clear to the accounting company that they'd treat KPMG much more gently if it cooperated--which meant waiving attorney-client privilege and cutting off payment of its former employees' legal fees. KPMG did the prosecutors' bidding, escaping indictment but leaving its onetime employees (and their defense lawyers) in the lurch. Judge Kaplan, after hearings that left the Manhattan U.S. Attorney's office and Main Justice red-faced, found that prosecutors had violated the KPMG defendants' constitutional rights. In yesterday's 68-page ruling, the Second Circuit agreed.

"The government’s conduct was wrong," said Ronald DePetris of DePetris & Bachrach, who defended KPMG tax partner Philip Wiesner. "Justice has really prevailed here."

The simultaneous release of the Second Circuit ruling and the new guidelines was pure coincidence, sources told Brian Baxter at the Am Law Daily. In fact, Baxter reported, Filip would probably rather not have had the two events linked. It's no secret that the Justice Department, which after the KPMG debacle took a beating from Congress for its treatment of corporate defendants, would like to put this issue to rest.

But at least one former author of corporate prosecution guidelines isn't so sure the new rules will end the debate. Paul McNulty, now a partner at Baker & McKenzie, was the third deputy AG to put his name on revisions of the memo outlining federal rules for prosecuting corporate defendants, following Eric Holder and, most famously, Larry Thompson. McNulty told Am Law's Baxter that there will still be pressure on corporations to waive privilege and cooperate with prosecutors.

He's glad, though, that the new guidelines erase his name from the discussion. "It’s a nostalgic time," he joked. "I think Eric Holder was happy when his name was disassociated with government overreach and so was Larry Thompson. So this should be my big day too."

PRODUCT LIABILITY
Vioxx Judge Caps Plaintiffs Fees
It isn't just the size of the pie in the store window, it's how much of the pie you are allowed to eat. (If this isn't an old adage, it should be). No one knows that better than plaintiffs lawyers, whose contingency fee agreements typically call for them to receive somewhere between 33 and 40 percent of their clients' pies.

But not in the Vioxx litigation. On Wednesday, U.S. District Judge Elden Fallon, the New Orleans federal judge overseeing the ginormous Vioxx case, capped fees for plaintiffs lawyers at a relatively low 32 percent of the $4.85 billion settlement pool. That means the 871 plaintiffs firms involved in the litigation will split about $1.5 billion.

Still a lot of pie, but what does the plaintiffs bar think? To find out, we called one of the plaintiffs lawyers who engineered the settlement, Russ Herman at Herman, Herman, Katz & Coltar in New Orleans. We were hoping for tears, or at least a rant, but the convivial Herman wouldn't bite. "The fee committee opposed judicial review of the fee contracts," he told us. "But the claimants come out better" when lawyers' fees are lower.

Does he think Fallon's order is fair? "We're supposed to be in this for the claimants, so by that measure it is fair," Herman said. "From a level playing field position, I'm not so sure."

Merck's lawyers, he told us, will be paid $2 billion for their work. Plaintiffs lawyers will receive less. Not, Herman hastened to add, that the Merck attorneys don't deserve their payday. "The Merck lawyers performed at the top of their profession," he said. "They are the toughest opponents we've ever had in a case. Whatever Merck paid, they are worth it."

                         

FIRMS
Steve Susman Sponsors Dems' Convention
One of Barack Obama's most concerned listeners last night had to be the larger-than-life Texas trial lawyer Stephen Susman of Susman & Godfrey. Susman, according to this story in the National Law Journal, was the only individual lawyer to be listed as a sponsor of the Democratic National Convention. His fellow law-related Dem sponsors? Greenberg Traurig, Hogan & Hartson, and Brownstein Hyatt.

Susman and his wife have given more than $280,000 to candidates for federal office since 2005, and it's clear from what he told NLJ that the money isn't going to the GOP. "This is the most important election ever in my lifetime for the legal profession," Susman said. "Unless we get a Democratic administration elected in November, the doors of the courthouses of this country will continue to close, victims will be further deprived of whatever limited rights they have now, and it will be a very difficult place for trial lawyers particularly, on both the plaintiffs and defense side of the docket, to practice their profession." (Here at the Litigation Daily, we love a lawyer who puts his mouth where his money is.)

Susman, who recently moved to New York, has never lacked for confidence; he was once photographed shirtless for an American Lawyer cover, though thankfully for all involved, the magazine chose to go with the clothed version. When he and Lee Godfrey established Susman Godfrey it was an explicit rejection of the conventional wisdom that lawyers could only work on one side of the docket. The firm, which has been a runaway financial success, now divides its time evenly between hourly corporate work and big-ticket contingency-fee cases, especially in the antitrust arena.

But as The American Lawyer has reported, about 80 percent of Susman Godfrey's revenue comes from the plaintiffs' side. Just in case you were wondering why Susman is so keen to bring back a Democratic president.

WHITE-COLLAR
Detroit Mayor Skimps on Fees, but Webb's Okay
Money seems to be the theme of the day as we head into the long Labor Day weekend. And frankly, this item from The Associated Press had us a little worried about Dan Webb of Winston & Strawn. Embattled Detroit mayor Kwame Kilpatrick is apparently not paying all of his legal fees. His former lawyer, William Moffitt of Alexandria, Virginia, has sued the indicted mayor, who is now represented by Webb, for $80,000 in unpaid fees.

Moffitt only worked for Kilpatrick for about month last winter, after revelations about the mayor's steamy text messages to his chief of staff led to talk of perjury and obstruction of justice charges. Kilpatrick paid Moffitt a $20,000 retainer, but according to Moffitt's suit in Wayne County Circuit Court, has not paid him the rest of the fees Moffitt incurred.

Webb has been defending the mayor since March, when Kilpatrick was indicted. Earlier this month, as we reported in the Litigation Daily, the Winston & Strawn chairman persuaded Judge Ronald Giles not to revoke the mayor's bail after an alleged scuffle with some sheriff's deputies.

When we called Webb, he assured us that his fees are still being paid. (Pshew!) He wouldn't tell us what his fee deal is, although he did allow that it's not the same as Winston & Strawn's free (albeit unsuccessful) defense of former Illinois governor George Ryan. Webb told us that he regards Moffitt as "an extremely fine lawyer," but said he doesn't know anything about his fee arrangement with the mayor.

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