Trying Cases: A Life in the Law 9780814728819

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TRYING CASE S

TRYING CASE S A Life in the Law

Haliburton Fale s 2d

n

N E W YOR K U N I V E R S I T Y P R E S

New Yor k a n d L o n d o n

S

NEW YORK UNIVERSITY PRES S New York and London © 1997 by New York University All rights reserved Library of Congress Cataloging-in-Publication Dat a Fales, Haliburton, 1919Trying cases: a life in the law / Haliburton Fales. p. cm . Includes index. ISBN 0-8147-2671-2 (cloth: acid-free paper ) 1. Fales, Haliburton, 1919 - . 2 . Corporate lawyers—New York (N.Y.)—Biography. I . Title. KF373.F29A3 199 7 96-5120 4 347.73'07'092—dc21 CI P

New York University Press books are printed on acid-free paper , and their binding materials are chosen for strength and durability. Manufactured i n the United States of America 10 9 8 7 6 5 4 3 2 1

CONTENTS

Preface vi 1. I

i

n the Zone 1

2. Gettin

g Under Way at White & Case 6

3. Early

Family and Professiona l Growt h 3

4. Antitrus

t an d Bankruptc y Case s 5

5 1

5. Th

e Steel Tax Case 7

7

6. Th

e McDonnell Dougla s Aircraft Cas e 10

0

7. A

Product Liabilit y Case 12

3

8. Stockholde 9. Ne

r Suit s 14

4

w Times, New Challenges fo r White & Case 16

10. Servic

e and Professiona l Responsibilit y 18

1 0

Epilogue 19

5

Index 20

3

V

PREFACE

The act of writing about one's own career may indeed seem an odd task. Yet, at the twilight of my fifty years as a corporate trial lawyer, as I foun d myself seeing another class of new lawyers in the firm, I knew they would inhabit a very different lega l world than I had. So I set out to illustrate a time that, though no w vanishing, had been serendipitous . I sometime s wonder if there will ever come again, or ever did come to many, the sheer excitement that permeated my career. During the 1960 s I often repeate d t o my five children, "The action i s where the squares are." I was not trying to instill conservatism but to promote achievemen t s o that the y coul d hav e fun an d mak e thei r point s where it counted. Experience has wedded me to my aphorism. Long after tha t tumultuous decad e passed us by, I was still serving as counsel to som e of America's top corporations , lawyering in the post World War II boom that propelled corporations an d governments into a global community. The legal profession wa s also changing. For most of my career it was possible for clients with courage and lawyers with skill to go all the way to verdict in a case for less than the cost to settle. (The system worked wel l enough the n tha t on e could predic t wha t t o do. ) M y profession, like the business sector , grew to be global rather tha n local ized. My firm now has offices fro m Hano i to Mexico City to Tashkent , which d o groundbreaking wor k in new areas of the law. And I observe how my younger colleagues , who work within a n increasingly competitive and less loyal professional climate, struggle to find time for family . Vll

viii / Prefac e

This book is an attempt to capture the essence of my time in the law, to present reader s with a sense of what it was like to be on hand, and occa sionally center stage, during a dynamic period in the history of the American legal profession. I hope readers may see in these stories a lively legal moment, a time tha t ha s shape d s o much o f America's corporat e an d public lives.

1 IN TH E Zone

Judge Inzer Wyatt dominated his impressive large-windowed and carvedpaneled courtroom i n Manhattan wit h the quiet, courteous manner o f a southerner. His brilliance, too, drew respect from man y who came before him in the U.S. District Court for the Southern District of New York. On this particular occasion , Wyatt handled th e jury trial between Caldwel l Clements, Inc., a small business magazin e publishe r fo r th e electrica l industry, and McGraw-Hill, a well-known publishe r o f business-relate d publications including Business Week. Smiling down at the panel from whic h jurors would be selected, Wyatt spent some time on the first day of trial explaining the lawsuit: the case involved an antitrust clai m lodged by Maurice Clements and his lawyer, Robert E. Nickerson, against my client, McGraw-Hill. He then addresse d questions he thought appropriate to help select the final jurors, finishing his work with, "So none of you on the jury panel know any reason why you cannot fairly and faithfully decid e between these two parties without favor of any kind?" They all nodded assent. Twelve members o f the panel moved int o numbered seat s in the jury box. Nickerson and Clements sat at the plaintiff's table , just opposite me and Joh n Cooke , genera l counse l fo r McGraw-Hill . Nickerso n bega n addressing penetrating question s t o the jury panel and exercise d thre e preemptory challenges . As he did so , new potential jurors move d int o vacated seats. When he challenged a juror, I intoned, "Defendant McGraw Hill waives its first challenge," and kept that up until he was through an d 1

2 / I n th e Zon e

I could rise to say proudly, "The jury is satisfactory to defendant McGraw Hill." In my turn I asked only questions reflecting concern for the jurors individually. I directed my last questions to a man in seat number seven. "And what do you do, Mr. Jones?" "I'm retired," he answered. "What was your career?" "I was in the railroad business." Pushing a bit further t o gauge his experience, I asked him, "What di d you do?" "I was in the dining car department." Sensing that this steward and the rest of the jury would appreciate my leaving it there, I stopped. In a dispute between busines s people, what I wanted was a jury tha t could listen to the evidence with care and trust me. I saw no point, in this kind o f multi-issu e litigation , i n tryin g t o gues s the predispositio n o f individual jurors, as one does in personal injury cases . I hoped tha t th e jury would interpret my disdaining to do so as confidence in the merits of my case and in them as fair-minded people . Nickerson's opening speech to the jury emphasized the small size of his client compared with the "giant" McGraw-Hill. He would show , he said, that McGraw-Hil l use d it s size and powe r unfairl y t o squeez e Caldwel l Clements to the wall to make room for its remaining electrical magazines. He told how, many years before, Edward Caldwel l (responsibl e fo r stan dardizing the electric floor plug) and Clements had worked for McGrawHill a s editors o f a magazine an d ha d the n bough t tha t magazin e an d started thei r ow n company . He stressed that a director o f McGraw-Hil l had sat on their board of directors in violation of Section 8 of the Clayton Antitrust La w and thu s had been i n a position t o know and t o counte r their every move. My lower-key opening did not addres s McGraw-Hill's size and power . Instead I emphasized the competitive field. The plaintiffs evidenc e would fail to show, I suggested, any "antitrust injury" ; tha t is , McGraw-Hill ha d done no more than compete vigorously, which the antitrust law favored. I argued furthe r tha t the y would fai l t o sho w an y specific us e o f powe r against Caldwell Clements. As for the shared director, the evidence would show that he was there to protect the loan McGraw-Hill had generousl y

In the Zone / 3

made to its ex-editors to help them bu y and get running the magazin e McGraw-Hill ha d though t o f closing. McGraw-Hill protecte d it s loan, and the magazine with its joint director continued to publish and prosper. Most of all, I urged the jury to weigh not what Nickerson or I said but the evidence itself. Nickerson calle d his first witness, Clements, and exhibite d a curious style of dealing with facts. I liken it to having a board with fifty screws in it, each representing a solid fact; the grooves in the heads of the screws point a t random i n all directions. He could adeptl y tell a story with th e head o f eac h scre w turned jus t a little s o they al l pointed i n th e sam e direction, making a clear, convincing pattern. My job became a constant struggl e to ge t the specific , detailed fact s straight, setting those little screws back to their true positions to make the false patter n disappear . I drew each witness's attentio n t o har d facts . I showed, for example , letters in which Clement s asked for, received, and thanked th e commo n directo r fo r help . Prior testimon y contradicte d what he and other witnesses said on the witness stand about pushing him around. Specific paragraphs or even words in actual contracts and letters gave the lie to the broad theme of trying to drive him out of business. The jury closely followed as the witnesses had to admit writing the letters, giving the prior testimony, or learning of the details of the contracts. The trial took the better par t o f two weeks. When no t o n th e stand , Clements sat at the counsel table impatiently harassing the secretary, who helped Nickerson keep the exhibits straight. John Cooke continued a t our counse l table until one recess when th e jury, contrary to custom, relaxed i n the spacious public hall. John wen t over to a group o f them an d starte d a conversation. "Mr. Cooke, please don't fraternize with the jury. We're not supposed to," I blurted out without thinking; it was not an act of legal ethics or courage. It just happened, as it had before. Once during World War II, I came out o f my captain's cabin t o find Columbus , a hug e steward , standin g wit h a n upraise d butcher knif e waitin g fo r a tormentor, wh o wa s chasing him , to com e around the corner. "Columbus, give me that knife," I had demanded, and he did . "Yesser, boss," he said . John Cook e wasn't polite , but h e didn' t demur. I asked him then and there to sit behind the bar in the spectators' seats.

4 / In the Zone

This was the first jury case I tried in which I experienced a feeling ath letes describe as being "in the zone," with "harmony among mind, body, and rules and tools of the game." You simultaneously engage in formulat ing questions, listening to each word of the answer, watching the reaction of eac h separat e juror , storin g tha t informatio n awa y for summation , keeping a n ey e on you r adversar y an d anticipatin g objection s t o you r questions, continuously monitoring the judge, and listening to your associate, who is whispering what may or may not be good suggestions. Amid all of this you have to keep in mind the facts you wish to emphasize, the law you hop e thos e fact s engage , whether you r nex t witnes s i s i n th e courtroom yet, and how the progress of the case will impress the in-house counsel for the client and the waiting witnesses. Out of the corner of your eye, you see the exhibits your adversary may use, and you try to fit those into the scheme of things. They say that we use only a small portion o f our brains, but I am convinced that in trying a complex jury case a large percentage of the grey matter goes to work. The thrill involved keeps jury trial lawyers convinced they have more fun than anybody. I thought I had done pretty well getting the facts dow n on the record , and my summation brought out the points I had made in the light of the charge I expecte d th e judg e t o give . Nickerson's masterl y summatio n included wheeling a file of exhibits in front of the jury and going through them for two hours to bolster his proposed, half-turned patter n of how a huge giant put the squeeze on a little company. A reputation fo r integrit y helps in the courtroom. Judge Wyatt, apparently believing in my approach, in his charge to the jury used some of the exact phrases I had used in my summation about antitrust injury and put the issues for the jury to decide in an order that followed my outline more closely than Nickerson's. The jury go t the cas e before lunc h an d cam e back with a verdict i n favor of the defendant by four thirty in the afternoon. When I met the discharged jury in the hall outside the courtroom afte r the verdict, they told me the plaintiff was so rude and nasty to his lawyer and assistant that they spotted him as a bad guy. Well, he was. But I will never know how much the careful settin g of the record straight on dozens of little matters influence d them t o believe that h e was also a liar an d that hi s imagined patter n o f conspiracy against him was made of whole cloth. After tha t jury verdict,

In the Zone / 5

neither Nickerso n no r Clement s ever bothered McGraw-Hil l again . Jury verdicts have a certain finality about them. That trial solidified m y preference fo r juries, although th e uninitiate d had been saying for years that picking juries wastes judicial time. My late partner, Bill Conwell, had a similar case before Judg e Edward C. McLean without a jury. Not only did the trial last longer because evidence excludable before a jury was allowed in—as i t usually is in a bench trial—an d then had to be met, but i n addition th e judge took adjournments t o dispose of other business and then permitted the attorneys the same latitude. After th e trial the briefing went on for a long time. Eighteen months afte r the clos e o f evidence , the judge's decisio n finally cam e down , filled as required with findings of fact an d conclusions of law, giving toeholds fo r appeal. The discipline of a jury case and the finality of a jury verdict save everybody's time. From here on out, I rejoiced whenever a client decided to go all the way to jury verdict. Although certainly more than half of my cases settled, and they should have, "a good strong cause and blows are delight." After th e Clements jury's early return, I sped from th e courthouse t o the ferry terminal to catch the Lackawanna to Gladstone for my first night at home tha t week . Previous night s had been spent , as always when o n trial, preparing witnesses, writing law memos and proposed jury charges for th e judge, and reviewin g th e dail y transcript o f th e question s an d answers, before finally getting a hotel room an d trying to sleep. The trial was over! There were no loose ends to think about. I could look forwar d to being met by Kak, my beloved wife, and telling her all the ebb and flow of the last few days. I felt good all over.

2 G E T T I N G U N D E R WA Y A T WHITE&

CAS E

Herbert F. July, my earliest mentor and the manager of the White & Case Legal Research Department, was cut from a cloth they no longer weave. A bachelor, he lived with his father, a retired court reporter, in a brownstone house on Twentieth Street. Herb's mother had been a teacher in the New York public school system. The family had moved from rura l Pennsylvania to New York City to get the advantage of the education provided in its public schools . Herb ha d n o religiou s ties, but I never kne w a kinder, more upright, or more selfless man. He worked only to bring out the best in the young lawyers in his care and to be sure the firm knew the exact state of the law on any given issue. He had no other ambition. White & Case had hired me in December 1946 ; fresh out of law school, I started the following October . I hoped that White & Case would be my lifetime hom e as a lawyer, and now fifty years later, they still give me an office. After a short stint in the managing clerk's office, I became part of Legal Research, that area of the firm fondly known as the "bullpen." Seven of us starting lawyers, each with our own desk and telephone, worked in one large room preparing memos on the law for partners and associates. Herb would take one of us with him to grasp the particular legal question the lawyer needed to have answered, usually requiring a thumbnail sketch of the partner's mental processes and idiosyncrasies as well as an under standing of the factual patter n i n which the question arose . Herb kne w each lawyer well and knew how to help pin dow n the sometimes amor phous groping ("There must be some law that would help us here") int o 6

Getting Under Way at White & Case / 7

a manageable research task expressed in terms of clearly articulated questions. That done, we were off . We started with Herb's file of prior memos and had available to us not only the firm's own handsome library with it s carrels but als o the entir e vast network of legal and general libraries throughout Ne w York City. We would ge t our la w books an d material s together an d the n star t writin g our memos . I would work , ofte n fo r hours , with scissors , ink, rubbe r cement, and yellow legal pads, drafting, cutting, and pasting to perfect th e project. (Oh, for the computer.) I wrote m y first memo fo r A l Heuston, a banking partner , who ha d been a n associate almost forever ; eventually , clients came to so value his quick and inventive mind that he became a partner. Al's Achilles' heel was his desire to please clients. My friend Willi s McDonald used to parody Al by quoting an imaginary opinion letter: "If this view is well presented to a forward looking court on a sympathetic state of facts the court could find a way to sustain it." My memo fo r Al concerned th e righ t o f on e o f ou r banking clients , which "owned" airplanes lease d t o a major airline , to enforc e th e lease provision that bankruptcy or statutory reorganization of the lessee airline would end the lease and allow the bank to get its airplanes back. I traced every statute introduced i n the present Congress and made sure no othe r statute had been repeale d o r amended, nor was about t o be. Every relevant case had to be understood and then checked out through digests and citation systems to make sure it had not been reversed, overruled, or mentioned unfavorably by another court: an arduous, time-consuming task in which one moment of inadvertence could be fatal. (Today, computer programs produc e thi s informatio n mor e accuratel y i n a fractio n o f th e time.) We found th e lease provisions totally proper, but Herb and I made sure to bring to Al's attention tha t th e legal right o f the bank coul d b e delayed for years by orders of the bankruptcy cour t and that, further, a n exception favored the continued existence of a public service corporatio n controlled by a regulatory agency. The agency could, and probably would, determine that retakin g the airplanes would make reorganization o f the airline impossible, and so the retaking clause would be held inconsisten t with the reorganization chapter and hence unenforceable. Thus armed, Al could properly advise the bank and determine what other course might be

8 / Gettin g Under Way at White & Case

advisable, so they would not risk tying up the depositors' money with no relief. This was a typical White & Case memorandum o f law. Each of us individually produced u p to three of them a week. The subject matter s covered trust an d estate questions, the constitutionality o f statutes, piercing the corporate veil (finding a corporation liable for the acts of a separately incorporated subsidiary), questions of enemy property, contracts between corporations an d thei r officers , expor t licenses , anticipatory breach o f contract, and holders i n du e course. We represented fou r majo r banks , none of which i n those days had an y inside counsel, so questions abou t safe deposi t boxes and tax liability, about th e transfer o f securities, and about th e validity an d effec t o f garnishments , attachments , and judg ments came with some regularity. We worked for any lawyer, important or not, who needed our help. Benefit to the client guided us. It was a general practice even if it involved for the moment being a generalist only in legal scholarship. We covered th e botto m o f th e hourglas s representin g broa d subjec t matter. The vertical skills of client relations, trial practice, and documen t drafting la y in the future. I was only just beginning to sense my desire to become, like Colonel Joseph M. Hartfield, a longtime respected partner, a lawyer to whom everyone came for advice on practical and legal questions. One of my earliest memos, written fo r Charli e Sellers, concerned th e propriety o f cumulativ e votin g b y stockholder s unde r intertwine d statutes going back to 1848 . Sellers, a pipe-smoking intellectua l who we are proud t o not e graduate d fro m th e La w School o f the Universit y of Iowa, had an exacting mind and never tried to stretch your research without consultin g you . Hi s expressiv e eyebrow s wiggle d whe n h e wa s amused. We always got on well. When he grew older, he boosted my stock by asking me to handle some detailed billing chores for him. I als o wrote memo s fo r Adria n L . Foley, an imposin g an d comple x man who , when h e was our managin g partner , had invente d th e Fole y scale, by which lawyers' working time by tenths o f an hour wa s diarie d and tabulate d b y client . (T o wha t exten t Fole y wa s a pionee r i n thi s endeavor and to what extent he was an adaptor is now lost in the mists of time, but th e Securitie s and Exchang e Commissio n [SEC ] by 195 0 was taking the position that if a lawyer did not have this kind of time record,

Getting Under Way at White & Case / 9

the lawyer was not entitle d t o compensatio n i n a bankruptcy proceed ing.) Foley' s year s a s managin g partne r ha d give n hi m a protectiv e grufifness o f manner, as well as a pencil-thin mustache , to conceal a sof t heart. Although Seller s an d Heusto n wer e satisfie d wit h m y research , what I wrote di d no t hel p Fole y to ge t ri d o f a baseless clai m agains t directors an d officer s i n a railroad reorganizatio n withou t tria l o r preliminary proceedings. My memo, accurate though I made it, did not provide th e basi s fo r automati c dismissa l o f tha t clai m b y proces s o f summary judgment . Fole y suggeste d w e tr y anothe r tack . A secon d memo I wrote explore d th e statut e o f limitation s an d choic e o f la w among four state s and did form that basis. Colonel Hartfield calle d Herb July and me into his office on e day on a complicated matte r concernin g th e termination o f the stat e monopol y granted pre-Hitler to the Swedish Match Company. The tripartite government in place immediately after the war thought it violated their rules. The Colonel, a delight t o work with, had a cherubic fac e an d a n infectiou s smile. I never saw him los e his cool or be less than courteous . He could tease people with such kindness that they preened. The Colonel stood just under five feet tall , and he usually sat with one foot tucke d underneat h him to raise him above his desk. If you were too loquacious, he would close his eyes and look sleepy, but he didn't interrupt. On this occasion he asked me, his new associate, to go with the client for lunch so that I could take credit for some good detective work at the Columbia Library into the Tripartite Commission's reasoning, of which even the client was not aware. For the Colonel' s matte r I produced a long memorandum abou t th e government monopol y an d it s start durin g the Dawes Plan period , th e theory of antitrust la w in forc e b y the tripartite regime , the sanctity of transnational contracts, a smattering of U.S. State Department precedent , and some other issues. The challenges of the bullpen left m e grateful t o my law school professors, among them Richar d R . Powell, who made students write researc h memos from their first month in law school. I remember my lawyer father advising me to imagine that Powell' s first question concerne d a problem he himself faced . "Put yourself i n his position an d try to help him i f you can," my fathe r recommended . "Don' t mislea d hi m b y an y favorabl e answer o r overloo k the obstacles, but find a way for hi m t o do what h e

10 / Gettin g Unde r Wa y at White & Case

wants if you can and tell him the worst that is likely to happen if he has to take something of a risk." This turned out to be good advice. Professors Gelhorn and Wechsler taught me to think in broad constitutional terms. The constitutional doubt s o f our partner s Joh n A. Giffor d and Mauric e E. McLoughlin abou t a statute changin g the presumptio n that court s ha d formerl y use d i n awardin g trustees ' fees , disappeare d when it was shown that their uneasiness arose from th e concept of "substantive due process," which, in the economi c sphere , had become out moded an d the n burie d i n the ten years from 193 7 to 1947 . In dealin g with contract questions, the sharp analysis of Karl Llewelyn was never far from th e forefront o f my mind. Not onl y my father bu t als o both m y grandfathers wer e lawyers. My grandfather Mitchel l survived, still practicing law, into his nineties. By the time he died in 1956, 1 had talked a lot of law with him and absorbed his views on the Canons of Ethics. My parents had been raised to recogniz e more tha n on e sid e t o a n issue . Each ha d a scrupulous regar d fo r th e truth. My mother would not even use the "white lies" common in friendl y talk. She never turned dow n a n invitation by using the words "we can't" unless that was the fact. I grew up with the keen awareness that language should reflect fact . I worked for most of the partners (twenty-three in all) and for many of the olde r associate s (th e whol e complemen t o f lawyers , including th e partners, was under one hundred). As skipper of the Alabaster during the war I had seven officers an d sixty-five enliste d men in the crew, and yet I could tel l who was on dut y in the engin e roo m fro m th e soun d o f th e whistle o n th e ancien t speakin g tube tha t connecte d th e bridge t o th e bowels of the ship . At White & Case I got to know my colleagues fairl y quickly. And what a bunch they were! The ubiquitous Colonel, in the absence of Mr. Case and the retiremen t in place of the overage Charles J. Fay, was the acting senior i n the office . Other active seniors included Joseph A. Bennett, who had been around so long that it was rumored he had come to the office in short pants. Bennett had gone to law school at night. He was insistent that clients' affairs not be bandied abou t an d alway s slapped o n his homburg ha t an d tucke d hi s chin down in the elevator so that no one would start up a conversation in that public part of the building. Walter Orr, the senior in the tax field,was

Getting Under Way at White & Case /11

said to get at least five brilliant ne w ideas every week, only one of which would tur n ou t t o be sound. The other partner s i n the tax departmen t had to make sure that only the good one saw the light of day. Not everythin g wa s serious , despite th e formidabl e Vermon t Hatch , before whom Herb July visibly trembled. Letters going out from White & Case had a rainbow of carbons: a green one, which the mail room stamped to prove mailing, a blue one for the matter file,and a pink one for daily circulation in each department, so that the head of that department and any other partners could keep track of what was going on. Hatch naturally read them with an eagle eye to catch typos or other errors, which brought a n instantaneous call from him and usually a lecture. On April 1,1948, Chris Wilson prepared a fake set of pink sheets containing in the first few letters some innocuous typos and in the next few some of Monty's pet hates, such as addressing bank officers a s "V.P." instead of "vice president." Almost the last one in this group was addressed: George Blank (n o Mr. ) Pres. 1st Nat. Bank B'way & Wall The next letter was addressed correctl y but said , "You have asked fo r our opinion o n whether trees cut in Missouri for shipmen t to Californi a may be covered by a real estate mortgage," and continued in language that would have made Al Heuston's detractor s blush, to the effect tha t "trees once having grown o n real estate could, under the law of several neighboring states , be held subjec t t o a real estate mortgage." Not unti l afte r Hatch ha d calle d som e o f th e transgression s t o th e attentio n o f th e lawyers whose initials were on the pink copies did he realize the signifi cance of the date. Monty did not think it funny . It was for this reason, I have always felt, that Chris Wilson became general counsel and subsequently vice chairman of our sometime client, First National Bank of Chicago, and not a partner in White & Case. Tom Kiernan tells me I am wrong; he says the Chicago bank made Chris an offer h e could not refuse . In those days a mythical organization known as Law Clerks' Union No. 13, composed o f al l the associates , collected som e mone y (including , I

12 / Getting Under Way at White 8c Case think, some surreptitiously donate d b y the firm) an d i n 194 8 gave new partners Thomas Kiernan and Maurice McLoughlin a party and a present on the occasion of their "dismissal from th e union." No partners (excep t the Colonel for a few minutes) appeared at these parties. In those bachelor days, the Law Clerks' Union parties consumed no t onl y the best qualit y food an d drink, but also vast quantities of the latter. Through the haze of the evening I vividly remember m y first Law Clerks' Union No. 13 party. Edward G. MacArthur, then the most senior associate, a gentleman pressing seventy, gave a long speech with witticisms about taking a deed in lieu of foreclosure. Chic Arnold sang, as tradition dictated , a song called "Persian Pussy." Although Chic could barely stand, he never missed a word or a tremolo of this ditty. Fortunately, many of the words that were, as they say, suggestive did not spring distinctly from Chic's lips. Chic's advice to those leaving the Yale Club after th e party was sound: "You'll find two yellow cabs at the curb. Always take the left one because the other doesn't exist." We showed up for work promptly the next morning; will power alon e got u s through th e day . No on e fro m offic e bo y to th e senio r partner s mentioned ou r pallo r o r slackene d th e demand s fo r scrupulou s work . "Ah, tell them they are men." Dana Backus , a senio r associate , a typical Harvar d man , battere d fedora an d all , never becam e a partner i n White & Case. He took th e opposite (an d finally successful) sid e from Mont y Hatch i n public discussion of the Bricker Amendment, which would have changed the law of the Unite d State s as interpreted b y the Suprem e Court . The Bricke r Amendment, th e great conservativ e caus e of the early fifties, sought t o overcome a Supreme Court case that made provisions of treaties signed by th e presiden t an d ratifie d b y th e Senat e th e interna l la w o f th e United States , eve n thoug h the y ha d no t bee n passe d upo n b y th e House o f Representatives . Th e offendin g cas e concerne d migrator y birds; the Cour t determine d tha t i t was illegal to shoo t bird s protecte d by the treaty, thus triggering a statute that provided a penalty for shoot ing protecte d birds. 1 Committee s o f ba r association s fough t bitterl y 1. For the funniest cas e on illegal trafficking i n migratory birds, see U.S.A. v. Janet Leslie Byrnes (2 d Cir. 1981) 644 R2d 107 , the "swan song" of Judge William H. Mulligan.

Getting Under Way at White & Case /13

over the proposal . The proponent s though t an d eve n sai d (fo r shame ) that th e opponent s wer e soft-minde d internationalists , no t tough minded upholders of our American Constitution . Although som e suspecte d otherwise , I doub t tha t Mont y oppose d Dana's admission t o the firm because of this controversy. Chris Wilson always thought Dana to be something of a stick, claiming that never in all the years they had known each other had Dana helped push the revolving door when they entered o r left th e building together. This certainly had nothing to do with the issue. Probably the reason was that Bill Knox, later secretary o f th e U.S . Bankruptcy Commissio n an d a brilliant lawyer , looked like a better bet to be the next partner i n the banking group tha n either Chris or Dana. Glover Johnson, a corporate partner of rising importance and "the only man," according to the Colonel, "who can strut sitting down," said that he liked to have some people in the office wh o were not busy so that when a huge new matter cam e in, he could agre e to take it, knowing that ther e would be lawyers to staff it. Despite these views, we worked aroun d th e clock when necessary. Mr. Case, whom I never met but who was still alive when I started, went around the office at 5:30 P. M., we heard, asking those who were still at work, "What's the matter? Can't you get your work done during regular hours?" We worked hard an d long, no doubt. But we had an unwritten polic y to have time for a private life and fo r ou r families . Partners did not measure lawyers by the number of billable hours racked up. As Herb July told us, "The quality of your work is much more important than the quantity." As for me , I commuted fou r hour s round trip each day from th e far m on which Kak and I lived next to my father's far m i n Gladstone, New Jersey. The long trips made for goo d discipline . In the morning I read th e New York Times with thoroughness, then rode the ferry to Manhattan an d walked up to Wall Street. Tall, ungainly Percy Chubb and I rode the ferry together. Sweet as a nut, Percy had a smile to sho w it. We used t o stan d ou t o n th e bo w i n th e morning sun , protected b y th e shap e o f th e boa t fro m th e prevailin g northwest wind , and discus s the affairs o f the day. Percy was a Kremlin watcher, and as the Cold War heated up, he kept one abreast of the significance of pictures of the Politburo and of the parade stand in Moscow. As

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head of Chubb & Sons and president of the Federal Insurance Company , he counted marin e underwriting among his specialties. He told wonder ful tales of his work during the war in the War Shipping Administration as second to Admiral Emory Scott Land, and he listened to my war stories. An inveterat e prankste r an d a good raconteur , h e could , lik e Colone l Hartfield, teas e people or say something harsh with such a smile that th e subject beamed rather than cringed. Despite the ten-year gap in our ages, we became fast friends . In th e evening , ove r th e jiggling o f th e railroa d car , I read advanc e sheets and wrote or correcte d memos . I arrived a t the office exactl y on time most mornings and left five minutes early to catch the five fifty-three home from Hoboken . The missed five minutes gave me an incentiv e t o waste no time during the day; I made it a habit not to stop for gossi p or idle talk and to keep pushing myself to work efficiently . A year or so after I came on board, the firm began cutting back on Saturday attendance. We got down to one associate on duty in the office an d one partner o n duty at home. One Saturday, when I had the duty, I got a phone cal l fro m a policeman i n Brookly n wit h ba d new s fo r Mauric e McLoughlin. He told me that Maurice's eighteen-year-old daughte r ha d been killed crossing Ocean Parkway. The officer wante d someone to find McLoughlin an d break the news to him gently . I thanked him and called Paul Pennoyer, who immediately said he'd take over. When Kak heard the story that evening, she wisely noted the affection betwee n Maurice and his community and the policeman's instinctive faith i n White & Case. Most non-New Yorkers don't know what a collection of villages the big city is. Pennoyer, with hi s striped Englis h shirt s an d auster e manner, stoo d taller than most everyone in the office. Many years later I found ou t how funny he could be. For now, we took him seriously when one day in talking to Kak and me, he suggested that it was a handy idea to keep a spare dinner jacket in Paris. Dear PGP, so formal an d straitlace d t o stranger s and so warm and open to family. He often picke d up a grandchild i n his car on the way into town and drove her to school. "Grandpa," she said one morning a s they sped alon g beside the Long Island Railroad, "why does the train blow twice at every crossing?" He, of course, had no answer, but he thought it so intriguing that a six-year-old should notic e such things that whe n h e got to his office h e called Her b

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July and aske d that sometime , when there was a young lawyer who was awaiting an assignment, he could give him a little question o f law. Such a day soon came, and one of our number fro m th e bullpen got this assignment. He found the answer, and PGP was able to tell his granddaughter. Nothing mor e shoul d hav e happened, but th e young lawyer though t the incident amusing , wrote i t up, and sen t i t to the New Yorker, whic h printed a version i n "Talk of the Town." Although th e version remaine d silent a s to the name o f the firm o r the partner, there were some othe r indications of identity. The young man disappeared from ou r ranks. A year or so later, I said to Orison S. Marden, "That was a breach of loyalty to the firm and a bad lapse of judgment, but I don't see why Mr. Pennoyer had him fired." "Oh, Paul had nothing to do with it. The senior partners decide d tha t Paul was a client and the lawyer had revealed a client's confidence. They did not want a lawyer in the shop who was insensitive to clients' confidence s and secrets." The dismissed lawyer got help in finding a job, and the partnership made no announcement of the reason for his departure, but word got around that you don't mess with the standards of White & Case. On August 13,1948, Lowell Wadmond, for whom I had seldom worked, called me into his office overlookin g the Sub-Treasury Building and Broad Street and invited me to join the Litigation Department . The reason I remember the date so well after s o many years is that ou r second daughter, Priscilla, was born that same day at Doctors' Hospital. I went fro m Lowell' s office uptow n t o find our wonderful daughter . Doctors' was a proprietary hospital, that is, it literally belonged to the doctors who had privileges there, and they ran it like a first-class hotel with goo d food an d wines. Mothers used to stay at least a week in the hospital afte r having a baby. So I would arrive after work, walk up and down the corridors with Ka k (once we peeked in a closet and quickl y shut the door: it was full o f tiny grey coffins), hav e a good dinner , and then liste n to th e raucous sounds from Graci e Mansion where Mayor O'Dwyer wa s always having a party. After Kak' s release, I took her to Gladstone an d used m y two weeks of vacation t o do the housework, rather clumsily , I'm afraid . But I did try hard. Our famil y wa s growing large. Our first child , Nancy, now five, had been born in 1943 on the day the Allies invaded Sicily. She was helpful an d

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dear. Hal, now an impish two, had arrived while I was taking the last exam of my first year in law school, the one that secure d my place on the Law Review. All the children were fun. What happy times we had! Right afte r Labo r Da y I starte d workin g fo r Oriso n Marden , wh o promptly becam e m y model o f th e lawye r an d perso n I wanted t o be . Although tall , Orison stoope d slightl y so that he could listen intently to those who were shorter. Orison had a wonderful smil e and no pretensions. As shown o n Eleanor Piatt' s medallion o f him, which is displayed in the New York University School of Law, his balding head was slightly conical. He sen t m e t o m y earliest appearanc e i n federa l cour t befor e Judg e Edward A. Conger in the New York, Ontario, and Western Railroad reor ganization. I had come to submit an affidavit o f the firm's services with a request for interi m counse l fees. Judge Conger, who had the reorganiza tion firmly before him, refused t o shut the railroad down; it ran, so it was said, through his home town. The assets had become so depleted that little remained for creditors, and even administration expenses (those incurred by the trustee during the proceedings), which are supposed to be sacrosanct, slipped under water. Orison told me to submit the affidavit an d sit down. The head o f the New York office o f the Securities an d Exchang e Commission, a distinguished lawyer , George Zolator, to my surprise go t up and told the court that lawyers who represented a bank as trustee fo r bond holders should look to the bank for their fee and not try to be paid from th e funds i n the hands of the court. He said this with all the weight of his office s o that it came out as a rule of law. Just the opposite was true. Contrary to my instructions, I leaped to my feet. "That's ridiculous," I thundered, throwing my arms out in a gesture of disbelief. Unfortunately, althoug h Zolato r was leaning back in his chair, my arms cast out s o widely that I caught him acros s the chops with th e back of my left hand . He teetered and, with an audible gasp, just caugh t himself fro m falling . I apologized profusel y an d sa t down i n confusion . For many years afterward, wheneve r h e saw me he would say , "Now it's OK to disagree with me, but don' t bust me in the kisser when you do." I always liked that George Zolator. I started ou t o n a long effort fo r J . Adam Murphy, a senior associate , to recover for Bankers Trust Company and twelve other banks what could be

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salvaged from th e wreck o f Seaboard Commercia l Corporation . Befor e World War II, Seaboard had been a respected company loaning money on receivables from installment loans on new automobiles. This had required a large staff of capable clerks who kept track of collecting the installmen t payments o n thousand s o f car s whose contract s the y bought fro m th e dealers. During the war, Detroit made no cars. The great factories of Ford, General Motors, and the rest made tanks and other war material instead. Seaboard went into the business of financing smal l companies doin g business with th e government , agai n b y buying thei r receivable s (pay ments under the government contracts ) an d paying them in installment s as inventory attributable t o the contracts cam e off the production line . The government contract s were good, and the governmen t neede d th e material and paid for it promptly on delivery. Seaboard continued to borrow its funds, as it had for years, from th e banks that recognized this new business as safe. State and federa l ban k examiner s who, of course, could not permit permanent loans, reviewed the banks' records. Thirteen banks each loaned one-twelft h o f the money. Each month on e bank droppe d out as a lender, to come back in the next month. By rotating in this manner, each bank persuaded th e bank examiners that Seaboar d pai d off its loan every year. To their detriment, the bankers did not use the month of f for investigating the company to decide whether o r not to come back in. They relie d upo n th e accountants ' statements , th e succes s o f th e wa r effort, and on one another. When the war came to an end, Seaboard di d not ge t back into the car business because the trickle of cars did not generate loans. The automobile companies had yet to see financing as a profit center, so the dealers insisted on cash. Seaboard had never had much in the way of management—it was in the business of processing payments. What to do? Seaboard decided to continue loaning money to its customers, numbering in the teens, to help them get into the production o f civilian goods. One company began making a stone picker, a huge machine to get stones out of the fields, making plowing and harrowing easier. Another company, which had been producing shell casings, decided to make fire extinguishers. As these companie s accumulated partl y complete d goods , Seaboard mad e installmen t pay ments to them in the same manner a s it had under the government con tracts. The stone picker never worked and, of course, they never sold any.

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The compan y tryin g t o mak e an d sel l fire extinguishers didn' t kno w i t needed underwriters' laboratory approval and that it didn't meet the engineering standards. No one bought its product. And so with the rest of the companies. The loans by Seaboard, supposedly backed by solid commer cial paper , wer e shee r equit y investment s i n untrie d an d unsuccessfu l goods. Seaboard found itself in deep trouble. The auditor s certifie d tha t th e loan s wer e supporte d b y "account s receivable, notes and othe r acceptance s guarantee d b y customers whe n the related receivables are collected," to the tune of about two million dollars and "advances against inventories" in a similar amount . We needed both legal and factual research proving that the two firms of auditors involved were reckless, not just negligent. In addition, we had to calculate an d establis h th e amount o f damages. Seaboard consente d t o have a liquidator come in to take over and collect what assets survived so as to salvage as much money as possible to pay off the banks and calculate the amount of damages. To complicate the banks' position, the liquidator, a Mr. Raeder, had t o make decisions and compromise s a s he went along . The auditors coul d always asser t tha t hi s decision s an d compromises , rathe r tha n thei r alleged auditing errors, were responsible for the smallness of the amoun t eventually collected. Because he was the agent for the claiming banks, this defense, if established, would be serious. Moreover, as plaintiffs, th e banks had the burden o f proving that th e auditors had caused the damage and by how much. The banks therefor e established a small committee to review Mr. Raeder's recommendation s before the y mature d int o decisiv e actions . I wa s likel y t o b e a t th e Seaboard office s searchin g the books and records, so Murphy, the senio r litigator on the case, asked me to keep an eye on Mr. Raeder to make sure he did not act without checking. A busy and self-confident ma n who was used to making decisions and who was doing a good job, he resented having to check his decisions with anybody. I kept Murphy informed not only of what I uncovered abou t th e underlying cas e against the auditors, but also of the liquidator's actions. I did not win Raeder's undying gratitude. But then , a s the Colonel' s nephew , Davi d Hartfield , use d t o say , "The practice of law is not a popularity contest."

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Eventually, we got to a conference wit h Eustice Seligman of Sullivan & Cromwell, representing the auditors, and Hatch and me, representing the banks. Seligman, an esteemed senior partner at Sullivan & Cromwell and a distinguished membe r o f a wealthy New York family, had forged a fine career at the bar. He came to persuade Hatch not to sue the auditors. He was, I suppose, entitled to rely on the juniors who briefed him . All I can say is that no White & Case partner would have found himself in the position Seligma n got into. None of us would have so inadequately briefed a partner, and no partner would have relied upon a document a s Seligman obviously did without having read it. At this conference Seligma n appeare d alon e to see his old friend an d fellow senior, Hatch. Hatch introduced me as knowing a little more about the facts than he and, in an apologetic manner, asked that I be allowed to accompany him, a request which, of course, could not be denied. Seligman began by reviewing the law. He did this with some accuracy, indicating that negligence was not enough; fraud or its equivalent was necessary. I was polite enough not to interrupt because Hatch was fully familiar with the two New York Court o f Appeals cases defining th e hurdle s third parties who had not retained the auditors had to get over in order to recover. The basic theory they espoused was that if you could show reckless disregard of the facts, then the auditors' statements that they had "audited" the books and that they had "an opinion" were simply untrue. No one who had checked the inventory and failed to notice that all the cases in a warehouse were empty, rather than containing millions of bottles of scotch, had conducted an "audit" nor had an "opinion" in the sense that that word was used i n a certification o f a balance sheet . It was a fraud t o s o pretend . Hatch did not demur to Seligman's restatement of the law. Seligman then went on to the facts, emphasizing the difficulty o f discovering fraud, emphasizin g tha t particula r piece s of paper backe d u p every dollar in the income statement an d balance sheet of Seaboard, and saying that it was not the auditor's job to do a credit analysis of the underlying companies whose paper constitute d mos t o f Seaboard's assets. But even if the auditors had some obligation with respect to the creditworthiness of the debtor companies , why, they were not eve n negligent abou t that. Here was a balance sheet of one of the companies that was our prin-

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cipal target, the one we most complaine d about , and that balance sheet was on the paper of the prestigious firm of, I think, Ernst & Ernst, at that time one of the most respected auditing firms in the nation. He placed on the table the document, with its grey cover showing the name of the subsidiary and the name of Ernst & Ernst, 120 Broadway. The outcome would have been the same if Hatch had picked up the paper then, but he turned instead and smiled encouragingly at his young assistant. "Mr. Seligman," I said, "we're familiar with that document. As you have candidly said, it is a balance sheet. Indeed, it is only a balance sheet, with no income o r profit an d loss statement t o accompany it. The reason fo r that (her e I opened the grey cover) i s that i t is a pro forma balanc e sheet only." The term pro forma was in capital letters on the first page. "This was produced, as you will see, by turning to the last page where the certification should be, for th e purpose o f possibly merging it with anothe r wholly owned subsidiary of a parent company." Turning to the last page, I read the auditor's language, which, freely translated, explained that this was merely an exercise and that it was not to be relied upon for any purpose whatsoever. Poor Seligman's dramatic presentation had backfired. He found som e words to salvage his self-respect an d to leave on a positive note, saying he knew so great a firm as ours would not bring suit on such flimsy evidence as we had, and made his exit. His tail was not actually between his legs, but you could tell that his heart was no longer in his client's case. White & Case did bring th e sui t an d name d al l the partners i n bot h firms. W e style d i t Bankers Trust Company v . Mendes. Th e reaso n fo r putting Mende s first was as a courtesy to the Touche Niven firm. Afte r some technica l maneuverin g abou t ho w we could stat e ou r complain t against the two merged firms, the parties settled fo r three-quarter s o f a million dollars , a number selecte d because that was the largest amoun t that a n auditor ha d eve r paid fo r it s mistakes and Touche was willing to equal, but not exceed, the record. It didn't want the world to know it had paid the highest amoun t ever . The courts were still loath to redistribut e wealth. Orison persuaded me to take evening courses in trial practice, gave me my first case to try on my own, and arranged for me to be loaned to the Legal Aid Society for a period of three or four months. Fortunately, the war had

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already roughed u p some of my smooth edges , but h e wanted m e to get some practica l experience . W e bot h kne w tha t th e la w concern s th e behavior of human beings and the management o f human affairs . Com mon sense and an understanding o f people count for more than brillian t scholarship, important as that is. Legal Aid was still a smallish outfit , no t yet expanded int o the federa l courts. The crimina l division , t o whic h I reported, wa s housed i n th e basement o f th e Crimina l Court s Buildin g a t 10 0 Centr e Street . Th e building, then relatively new, seemed adequate for its task. Even the Legal Aid offices wer e not overcrowded . Benny Schmeer headed the office. H e had, I guess, a more forma l name , but I never heard it . He greeted m e warmly and inquired where I lived. I told him, "Gladstone, New Jersey." I knew a bag from ther e once. Now, kid, you're wet behind th e ears and yo u don' t kno w fro m nothing . Bu t I' m gonn a teac h yo u an ' you're gonna learn, OK? First thing, facts, facts, facts. Ya gotta get the facts. Your clients, they gonna take one look at you and they gonna tell ya some goddam n coc k an d bul l story . They were in Chicag o when it happened. Now this city has a lot of jails and they're filled with peopl e that didn' t commi t th e crime they were sentenced for . They're probably guilty of something—maybe something other than they were accused of—but that' s not why they're in jail. They're in jail because they lied to the cops. The cops don't want people to talk so they'll confess. That doesn't happen very often. They want people to talk so they'll lie. And the cops get them to embellish the lie. "Tell me what train you took back from Chicago? What hotel did you stay in, man?" Now the cops got 'im. He can't take the stand because the cops can prove the dud e neve r went t o Chicago . Lotsa people will testify the y seen him in New York the day of the crime. The hotel in Chicago got no recor d o f him. Even his mother wil l swear she give him breakfast tha t morning. So he can't take the stand, see, and th e jury gonna believe the cops. Now when the guy tells you his story, it's gonna be a load of crap. You gotta say, "Don't give me that horseshit . I'm here to help you but I can't do nothin for you if you don't tell me the truth. " And the n yo u gott a lear n th e trut h an d the n y a gott a decide what to do.

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Benny got out the Penal Law and explaine d al l the degrees of murder , manslaughter, and assault. He went over the crimes of robbery, burglary, grand and petty larceny, loitering, and jostling. He made us volunteers sit down and memorize those statutes so we could recite them i n our sleep. Then h e tol d u s th e rang e o f penaltie s fo r each , an d th e mos t usua l penalty actually given. He went over the procedures in the criminal court, and he made us learn those statutes too. About three mornings a week we came in early for a forty-five-minute sessio n with Benny, who poured ou t his knowledge of law and life and judges and tested u s on what we had learned. Despite his own heavy workload, Benny was always available to any lawyer in the office fo r questions, advice, and encouragement . "OK, go out ther e an d knock the sock s off 'em. " Benny assigned m e first to the arraignment part, where all the prisoners were brought for the purpose of seeing if the cops had a prima facie case sufficient t o continue to hold them in jail or grant bail, or not enough so they must be let loose. The only place to interview the prisoner, my client, was called the pen, a cage just outside the courtroom doo r to the right rear of the bench. The three-fourths-inch-thick bar s extended t o the ceiling, enclosing a space about six feet by six feet, without any chair nor anything to write on. But this wasn't much o f a writing practice. It was all oral. When in court, we had skilled shorthand reporters. But in the cage, of course, I stood one to one with my client. The court officers wer e decent about no t eavesdrop ping, but they were always going by, and other prisoners were around. It wasn't an ideal place for an interview. One client, a fierce-looking woma n dresse d i n nothing but a camel's hair overcoat, carried a switchblade knife in her pocket; she brought it out from time to time and reflectively clicked it open and shut, open and shut. This did not contribute to the ease of telling her that what she was saying wouldn't be believed by anybody and was not eve n believed by me. For once I was not unhapp y to se e some other folk s around . What sh e was accused of and how we handled her case I no longer recall, but I can still see her angered face and hear the click of that knife. Eventually, I got to try some of the minor cases. A woman who had bitten a cop quite badly obtained a sizzling success. The cops charged he r with resisting arrest and with assault. We tried the resisting charge first. It turned ou t tha t th e cop had busted he r doo r i n without a warrant an d

Getting Unde r Wa y at White & Case / 2 3

without a crime being committed i n his presence or any other legitimat e reason for invading her castle. She was found no t guilty of resisting. I was about to defend her on the assault charge on the ground of justifiable selfdefense, with a good chanc e o f saying that tha t issu e had alread y bee n decided. Just before the second trial, a private counsel took over, presumably because that counse l wanted t o take the chance that sh e had a civil claim for damages. We never heard how the matter ended . A nice-looking young Hispanic man was arrested for "jostling," a statutory offense, whic h coul d be proved by showing conduct tha t was ofte n consistent wit h innocence . The facts usuall y shown were that a subway cop was riding between car s observing the scene. He noticed "the defen dant approac h a sleeping passenge r an d plac e hi s righ t han d nea r th e sleeping man's rear pocket where there was a bulge like a wallet." Voila, the people's cas e wa s mad e an d th e defendan t coul d b e sentence d t o si x months! The jostling statute was eventually repealed afte r Warren Cour t rulings cast doubt on its constitutionality because the element of intent to steal had t o be inferred rathe r tha n prove d beyond a reasonable doubt . My man wa s i n th e marke t unde r th e elevate d railwa y o n uppe r Par k Avenue, where he allegedly jostled anothe r shopper . On arraignment , we got the cop on the stand and he gave his story, which seemed to me thinner than usual. Besides, as we brought out in requesting bail, my man was employed, had a home in the Bronx where he lived with his parents, had graduated fro m hig h school, had a wallet of his own with identificatio n and a suitable sum of money in it, neither too large for his means nor so little as to put temptation in his way. The magistrate refused bai l and said he would remand the prisoner to Riker's Island. We could, however, have an immediate trial. Even in those days, Riker's Island was not a safe place for good-looking young men. The state of New Jersey later sought money from Victoria Foundation fo r a film encouraging high school students to avoid jail because olde r prisoner s woul d likel y gang rape them . I have never ha d an y qualms abou t makin g th e prosecutio n prov e thei r cas e beyond a reasonable doubt before sentencing a human being to prison. We held a hasty conference and discussed our alternatives. If we put off trial, we would have time to bring in the parish priest, the employer, and others who might testify t o the man's character, and thi s might hel p o n the merits of the case. I felt my client would be a good witness in his own

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behalf. We opted for an immediate trial before a different magistrate . The policeman gave his testimony, which did not seem convincing to me. I did not cross-examin e becaus e ther e wasn' t anythin g helpfu l t o brin g ou t except that the place was crowded, and that he had already said. I put my man o n the stand, and he told of being asked by his mother t o go to the market to buy a nice piece of fish for dinner. He had the money in his wallet, which he produced. He had wandered about the market to look at the various stalls and finally got in line in front o f one of them. There was a certain amoun t o f crowdin g an d pushing , bu t h e ha d certainl y no t attempted t o pick anyone's pocket. Why should he ? He had a good job and a goo d famil y home . I submitte d tha t th e cour t di d no t nee d t o believe the cop was lying; the defendant might have touched someone else near a pocket, but his own evidence disproved any criminal intent; criminal intent, even under this statute, was necessary. The court pronounced the dreaded words: "I find the defendant guilty." The cour t di d no t eve n mak e an y reversible error . We had just chose n wrong. My client took the decision in stride and went out with the cops without a word of recrimination. Nothing in all my experience at the bar ever went 10 0 percent wrong again, but I knew now what could happen . They say to be a good lawyer you have to have lost at least one case. I most certainly had. Orison Marde n wa s not onl y "Mr. Legal Aid in New York," but h e als o became head o f the Association o f the Bar of the City of New York, the New York State Bar Association, and the American Bar Association, a distinction accorded to only three other lawyers in history. Orison go t me started o n bar associatio n work first with the Association of the Bar of the City of New York, perhaps the premier bar group in the United States . Harry Tweed, its first postwar president, pepped i t up. He said in his inaugural address, "I have a high opinion o f lawyers. They are more fun t o fight with, drink with, or play with than most other varieties o f mankind. " Toward th e en d o f hi s career , when h e wa s electe d interim presiden t o f Sarah Lawrence, the women's college in Bronxville, Tweed gave a slightly altered version. I landed first on the Admissions Committee, which I came to chair. The association though t o f itself a s a group of lawyers of high standing. The

Getting Under Way at White & Case / 25

admission of a new member was supposed to elevate the reputation of the association fo r th e honor, integrity, and learning of the bar—or simila r words. The climate of the day invaded the work of the Admissions Com mittee in the 1950s . Members oppose d radica l lawyers for tw o reasons. First, their loyalty to the United State s was sometimes questioned . Basically, that was silly. The Character an d Fitnes s Committee certifie d eac h lawyer as "loyal to the form o f government" of the United States. When I was being examined, an old man in a starched collar asked me what for m of government th e United State s had. Sizing him up , I said, "The Unite d States has a government of limited powers." That satisfied him . Second, in their zea l radical lawyers sometimes offende d mor e tradi tional lawyers and in the ensuing heat forgot th e judges and the courtes y that makes the adversary system tolerable. Very few did. Leonard Boudin, who represented many of the Eastern European governments, had impeccable manners. I do not mea n t o suggest he acted like a dancing master , but he did not lose his temper, he always addressed the court and not his adversary, he never raised his voice, and he did not interrupt. He tended to stan d o n tipto e when h e got t o a crucial point , but I never sa w him exhibit an y other sig n of tension. Many, many times I watched hi m si t quietly while his adversary belittled o r insulted his client and denigrate d his position t o the point wher e the whole courtroo m expecte d tha t h e could onl y rise to apologize. Instead, he would star t i n a soft voic e with some blockbuster opening : "What m y adversary forgets, your Honor , is that my client has a treaty with the United State s upon which the relief I am seekin g i s founded. I t i s beyond questio n i n thi s cour t tha t w e are bound by the terms of that treaty. It provides ..." Within a minute or less the atmosphere i n the courtroom woul d d o a complete somersault . My purpose her e is not t o condem n o r promot e particula r radica l lawyer s who ge t involve d i n judge-baiting. Th e conflic t abou t radica l lawyers , however, took up most o f the time of the Admissions Committe e o f the association in the years I served on it. The names and discussions remain confidential. The antics of conservative lawyers like Roy Cohn, who made his infa mous European jaunt wit h hi s sidekick Schine , aroused les s flack a t the association. When I attended m y fifth law school reunion, I heard every body bashing Cohn.

26 / Getting Under Way at White & Case

"Of course, he's an SOB," I said, "but why are we all talking about him?" "Don't you remember? He's a member of our class." I tried hard to picture on e of the Kent Hall classrooms with the long benches at which we sat in alphabetical order, and finally got a mental picture of an insignificant an d fairly silen t little guy. Roy had been hurrie d through hig h school and again through colleg e by wartime acceleratio n and di d law school i n two years with the rest of us. He graduated lon g before hi s twenty-first birthday . Everyone admired hi s father, a justice of the Appellat e Divisio n Firs t Departmen t wit h a reputatio n secon d t o none. Hi s mother , whos e famil y owne d Lione l Trains , whic h w e al l enjoyed i n our youth, is said to have spoiled him. I came across Roy in practice several times over a long span of time and never found tha t he accomplished anythin g for an y clients except delay, and that usually turned ou t to be costly to his client. Once he resisted a just debt for which we sued on behalf of Inland Steel. We collected the full amount of the note plus interest plus costs, and counsel fees as well. At the end of his career, he represented a minor. His contribution t o her welfar e was to get her written out of a relative's will and to run up a counsel fee of some eighty-fiv e thousan d dollars . I a m awar e o f th e siz e o f th e fe e because he had the chutzpah to try to collect it from his adversary. One o f th e committee s I worke d o n a t th e Associatio n o f th e Ba r focused o n the passport problems o f the day. McCarthy and Ro y Cohn still rode tall, and the notion of dangerous ideas infected the government. Eisenhower disliked unfairness and for that reason rejoiced in McCarthy's downfall, but he didn't really dispute the danger of allowing U.S. residents to go to communist countrie s and retur n t o the United States . His State Department restricted the right of U.S. citizens to travel abroad. U.S. passports routinel y carried stamp s with the words, "Not valid for trave l t o Russia, Yugoslavia, Albania, Rumania, Hungary, China o r Cuba, " or an y other country with a communist government. No one tried to stop travel to semifascis t dictatorship s lik e Argentina . Wit h Bo b McKa y a s th e reporter, this committee publishe d a hardcover book calle d Freedom to Travel, which I like to think had something to do with the gradual relaxation and then abolition of these foolish restrictions. The front doo r o f White & Case's office a t 1 4 Wall Street, right acros s from the entrance to the New York Stock Exchange, the onetime symbol of

Getting Under Way at White & Case / 27

the capitalistic system, sat diagonally across from th e pockmarked edific e of 23 Wall, the erstwhile offices o f the Morgan partners. Our building also stood halfway between the Sub-Treasury Building, the site of the first capitol o f th e Unite d States , with it s statu e o f Georg e Washingto n sayin g farewell to his troops, and Trinity Church with its ancient graveyard. We shared th e building with Banker s Trust Company , our principa l client. The First National Bank and th e New York Trust Company , both clients, were next door. To the east was Nassau Street, which lead directly (before the new ramps to the Brooklyn Bridge) to Foley Square, the home of the courts with which we most often dealt . White & Case moved to this location, ideal for a law office i n the great tradition o f serving primaril y the bankin g an d busines s communities , i n 1912 , the yea r Josep h M . Hartfield becam e a partner. We stayed until 1984 , when we followed th e center of the city to midtown. Our advantageous rabbit-warren office s mad e it hard to tell who was a partner an d who was an associate: senior associates had big rooms; some partners had small rooms. Monty Hatch's impressive office, with a black marble Adam fireplace, had once been occupied by J. P. Morgan. The view between the granite pillars framing the huge windows of Mr. Case's office, now occupied by Irving S. Olds, commanded Broa d Street. On the othe r hand, the office from which Lowell Wadmond presided over the Litigation Department wa s no bigger than Cheste r Bordeau's . Jim Murphy took it over when Lowell finally accepted a large office. David Hartfield, through out his career, had a small office by choice. This room arrangement raise d the stature of associates at the firm. How the pie was split was a matter among ourselves, but to the outside world a lawyer sent anywhere to represent White & Case carried the full weight of the office with him. White & Case had a fortunate positio n i n the 1950 s as the only really top-notch firm withou t a major investmen t bankin g client . Many new companies for the first time sold common stoc k to the public, known as "going public." They needed separate counsel from the investment under writers. Lawyers like Glover Johnso n brough t t o th e firm a number o f companies tha t were ready to go public, but mor e importantly , invest ment firms usuall y suggeste d t o th e companie s tha t cam e t o the m fo r advice on how to go public that a s separate counsel White & Case had a specialty of representing companies going to the market for the first time.

28 / Gettin g Unde r Wa y at White & Case

Not only did this bring us a lot of work in helping prepare the prospectus, S-l, or selling document, which described the company in exquisite detail and which had to clear the Securities and Exchange Commission, but we also usually continued t o be the lawyers for thi s new company. Familyowned companies did not need much legal counsel, but the executives of a company with outside stockholders for the first time needed guidance in preparing for stockholders 5 meetings and in the general duties of stewardship in running what was now somebody else's property. For many years White & Case represented Rober t Young, a controversial executive entrepreneur. The story around th e office wa s that Genera l Motors left u s as a client after askin g that we cease to represent Young for no better reaso n tha n tha t the y didn't lik e him. Mr. Case told Alfred P . Sloane, GM's chairman, we would choose our ow n clients and not allo w any client, no matter how large or influential, to tell White & Case whom they would or would not represent. Young had acquired a controlling interest in the New York Central Railroad through Allegheny Corporation, which owned some other railroad s also. The voting shares of some of these had been placed in a trust so that Young couldn't merg e them without Interstat e Commerc e Commissio n (ICC) approval , which, because o f both antitrus t an d labo r protectiv e laws, was at that time hard to obtain. The James Foundation, left by Arthur Curtis James, a flamboyant American Edwardian whose square-rigged yacht, the Aloha, I had seen off Newport i n th e thirties , owne d th e majorit y o f th e share s o f th e Missour i Pacific Railroa d that ra n basically from Chicag o to Oakland, California . The foundation ha d a finite life under James's will of, a s I recall, twentyfive years , by which time all the money was supposed to have been given away. In preparation fo r that event, the trustees of the James Foundation, led by George Burr, decided it would be prudent to sell the Missouri Pacific Railroad for a good price rather than to wait till they were under the gun. Two knowledgeable railroa d men , experts by the names o f Wyer an d Phlugfelder, ha d th e task of finding a buyer fo r th e railroad. Young was not, to pu t i t mildly, a favorite o f Burr's ; Burr said , or though t h e ha d remembered t o say, to Wyer and Phlugfelder tha t they could sell the railroad t o anybody but Young. The testimony was not clea r on tha t point , but i t was, perhaps, irrelevant becaus e the y did offe r i t to him, and h e

Getting Under Way at White & Case / 29

agreed t o bu y i t all , a t th e marke t price . According t o testimon y w e elicited, brokers made out tickets showing the sale to Allegheny, and then after a call to Burr, they tore them up and threw them away. Now after a n orgy of mergers and acquisitions everybody knows that obtaining a large enough majority o f the shares of a company would allow the new owner to consolidat e th e account s fo r bot h reportin g an d ta x purposes, thu s making the new company worth more. The failure to sell, at market price, was not, therefore, damnum absque injuria ( a wrong no t givin g rise to recoverable damages). We were sure we could show that. Our problem, we believed, wa s t o prov e a contrac t i n writing . Th e Ne w York Cour t o f Appeals had recently decided Crabtree v. Elizabeth Arden, greatly liberalizing the ways in which a written "memorandum of a contract signed by the party t o b e charged " (th e statutor y minimu m requirement ) coul d b e proved. Crabtre e recovere d agains t Elizabet h Arde n b y testimony tha t connected severa l memos an d unsigne d letter s to indicate a contract o f employment fo r mor e tha n on e year . Th e signatur e requiremen t wa s satisfied with her first paycheck. With the consent of the client, White & Case assigned J. Adam Murphy to try the case and retaine d Prof. Arthur Corbi n o f Yale Law School an d Corbin on Contracts to assist us. Mel Milligan an d I worked for Murphy . We put togethe r a pretty goo d theor y relyin g largely on th e destroye d brokers' tickets and a signed letter of authority to Wyer and Phlugfelder . We tried the case before the no-nonsense Judge Sylvester Ryan in the U.S. District Cour t fo r th e Souther n Distric t o f New York. Judge Ryan was straight as an arrow, with a practical turn of mind. We all thought we had a strong technical case, but we recognized that the defense had a sympathy-generating one : a charitabl e foundatio n whos e trustee s ha d no t wanted t o sell to us and who, in immediately cancelin g the sale, if there was one, had though t tha t cancelin g a sale at market pric e would caus e no damage. The case took a week or more to try, and Professor Corbi n prove d his weight. Although almost eighty years of age, he stayed up with us till midnight reviewin g the day' s testimony an d preparin g fo r th e morrow. He made searchin g inquir y t o assur e himsel f tha t w e covered ever y poin t from venue and jurisdiction to limitations and damages. He told of working with anothe r prominen t la w firm that ha d totall y failed t o conside r

30 / Gettin g Under Way at White & Case

conflict o f laws. We assured hi m w e had lef t n o ston e unturned . Afte r investigation he concurred. Ryan held against us , to our surprise , on the ground tha t th e writte n agreement on which we had to rely to get past the statute of frauds gave to Wyer and Phlugfelde r onl y authority to find a buyer, not t o conclude a sale. We appealed to the Second Circuit, which affirmed Judg e Ryan, but on a different theory , holding that we couldn't buy the stock first and the n put it in the trust because we would have been in violation of the ICC Act in the interim , however short . This was a construction contrar y to th e plain language of the trust instrument that the ICC, in the proper exercise of its powers, had approved. Hence our dilemma : should we petition fo r certiorari t o th e Suprem e Cour t o f the Unite d State s i n a fact-specifi c case, which had little precedential import and no divergence in the circuit courts or other usual ground for granting certiorari, or should we ask for reargument and risk the power and inclination of the circuit court to correct thei r erro r an d find agains t u s on som e ground eve n less likely to obtain certiorari ? After consultatio n wit h the Colonel and the client, we chose the latter course. The Circuit Court cam e back with a factual finding based, in my judgment, o n th e flimsiest casuistry , that Young had neve r intende d t o deposit the stock of the Missouri Pacific i n the trust. It was true that we had not, for a variety of reasons, put the controversial Young on the stand, but it was inconceivable that anyone would assert he should shoot himself in the foot b y intending not to follow the legal path that he had s o carefully worked out with the ICC. However, the "factual" nature of the finding, based upon on e misconstruction o f a letter b y Young and th e absenc e of any affirmative testi mony that h e intended t o d o what an y rational perso n i n his positio n would have done, enabled the Court o f Appeals to preserve most o f th e assets o f th e Jame s Foundatio n fo r th e charitabl e purpose s fo r whic h Arthur Curti s Jame s ha d dedicate d th e bul k o f hi s estate . Swimmin g upstream agains t the equities is pretty hard i n any decent legal system, even when you are right on the law. The Supreme Court denied certiorari. Way back in the mists of time (long before the trial described in chapter 1), Orison had a case brought by a young associate at Cagle and Caske y

Getting Under Way at White & Case / 31

asking that our client , McGraw-Hill, a great publisher o f business magazines, not be allowed to publish a special issue of its electrical magazine. The claim involved the sale of another magazin e by McGraw-Hill to two former employees , Caldwell and Clements. As part of that sale, McGrawHill agreed to certain restriction s on it s activities. McGraw-Hill though t its propose d issu e di d no t violat e thos e provisions , but th e cour t ha d found otherwis e and se t the issue of damages down fo r trial . Before th e trial took place, Orison settled the whole case in a manner agreeable both to the plaintiffs an d to McGraw-Hill. In writing up the settlement docu ments, Orison aske d for th e normal genera l release. The partner a t th e other firm, Fred Pride, said with some embarrassment tha t he could no t provide that—Mr. Caldwell was the father-in-law o f his associate, Robert E. Nickerson, and he, Pride, did not control the client. Orison pointed out that it was not our policy to advise our clients to pay money to adversaries who would use it to finance further litigation . If they wanted a settlement, they should put al l the demands on the table and settle them o r not, but no partia l settlemen t woul d b e forthcoming. Th e cas e went unsettled . Nickerson brough t a ne w cas e i n th e U.S . District Cour t relyin g o n antitrust claims. Orison asked me to help him on this new case, to which James McGraw, Jr., the eldest son of the founder an d a former CE O of the company, was also a party. Dave Schencker , forme r genera l counse l o f th e SEC , and hi s olde r brother, Ben , represented Jame s McGraw , Jr. Cheerful rogues , both o f them smoked cigars all the time—in taxis , at depositions, wherever I saw them, which was a lot because the case was so time-consuming. I finally went back to smoking cigarettes myself. One day , when I was riding in a cab with both brothers , Ben opene d softly, "Hal, I got a client who is trying unsuccessfully to renew a mortgage with the Bank for Savings " (my father wa s chairman o f that bank), "and, Hal, you can be the lawyer and get the whole fee for handling the matter if you can get the mortgage." "Oh, Ben," I countered, "I am learning to be a trial lawyer. I don't know anything about drawing mortgages." "But," Ben insisted, "you have people at White & Case who could help you." "Well, I don't think that I want to get into drawing mortgages."

32 / Gettin g Under Way at White & Case

"But...," Ben started, when Dave interrupted him . "Ben, you don' t understand . Hal is just too ethical , and he's trying t o turn you down politely." What coul d I say? I sounded like an ethical prig, but I wasn't about t o change my position. So I said nothing, and Dave began to tell us a story about gettin g somebody a job in the general counsel's office o f the Agricultural Adjustment Administratio n (AAA ) during the depression. Dave called up his friend there , a notorious pinko generally understood to be a Communist Party member, who gave positions only to card carriers. "Why should I give this guy a job?" "Because he's got a wife and two children and they're all hungry," Dave replied. The guy got the job. Dave had human feelings . The McGraw-Hill case eventually settled. We drew the most complet e release and associated papers we could. In my ignorance I asked Orison to insert a provision that Nickerson would not represent the plaintiffs again , only t o b e referre d t o th e Canon s o f Ethics , as they were the n called , which set a hard face against agreements restricting the choice of counsel. Nickerson's representatio n o f hi s father-in-la w i n risk y litigation was , however, a temptation t o further cases . The old gentleman supporte d hi s son-in-law out of tax-deductible funds at high rates, the top bracket being in the 92 percent range, with the possibility of getting treble damages and counsel fees tax-free. In any event, not long after we settled, he started a new action (th e one in chapter 1 ) based upon event s occurring after th e settlement but which would no t have been illegal except for allege d breaches of law occurring before th e settlement. A fine lawyer and human being , Phil Weeks, took on the new case. In the interim, Orison, with some help from me, defeated two Federal Trade Commission (FTC ) actions stimulated by Nickerson. Phil and I struggled valiantly with the new case. The facts spanne d by now some fifteen years, and between th e collatera l estoppe l (fact s tha t have alread y been judiciall y established) , if any , of FT C cases an d th e defense of the settlement, were getting complicated. Nickerson taught us a good lesson by devising the most complicated written interrogatories and document demand s yet serve d unde r th e Federa l Rules of Civi l Procedure. They started with what i s now routine—a se t of definitions tha t expanded o n the word document, for example , to make it encompass any

Getting Under Way at White & Case / 33

form o f permanence to which human though t coul d be subjected an d to include as a separately demanded documen t anythin g bearing any differ ence, suc h a s an y draft , an y cop y underlined , initialed , interlined , o r altered by anyone. The interrogatories, of course, required written expla nations of each separate paper, draft, initial , or interlining, excruciatingly detailed wor k tha t ha d t o b e don e fo r th e mos t par t i n uninterrupte d evening hours. I was lucky enough to decide to do it all by myself, an easy decision i n thos e day s before paralegals . As a result o f onl y about tw o weeks of hard work, I laid out to my satisfaction th e theory of the plaintiffs cas e and th e facts establishin g it s invalidity an d th e theory of ou r defenses and the facts establishing them. What had been for many years a mishmash of complex and messy facts became, in my mind at least, crystal clear. I never served a similar set of interrogatories on behalf of a White & Case client, and I eventually made it White & Case policy not to do so. That ne w case against McGraw-Hil l di d no t com e to tria l unti l afte r I became a partner. Over these years as an associate I learned my trade not only by helping Orison try a case before Justice Matthew M. Levy, but also by helping Tom Kiernan in several actual trials and by working with Chester Bordeau in a couple of jury trials. Tom Kiernan was a real trial lawyer, who played everything straight. He never exaggerated , never use d a metaphor, an d neve r sai d anythin g h e could no t prov e by an eyewitness or a n admissibl e document. Tom di d not share the common adoration o f Justices Cardozo and Holmes, whom he dismissed a s too flowery. He looked like a senator. Orison use d to call him that, a compliment returned by calling Orison "Professor. " Chester Bordea u was a White & Case original. He had a bald head as big as a soccer ball that looke d a s though a Keystone cop could break a nightstick o n it. His only life was the office. H e was always ready to help associates with law questions o r strategy, provided the y had don e thei r homework. I also worked on cases like Spitzmuller (see chapter 3 ) that we submitted to the court o n stipulated facts . And I tried several cases on my own. The biggest training ground, however, was something called fair trade litigation. We young lawyers in litigation had our fill of handling those cases on ou r own . We sued an d obtaine d injunction s agains t an y retail stor e

34 / Gettin g Under Way at White 8c Case

that sol d Genera l Electric small appliances below the enforceable pric e and brought contempt actions against those who violated the injunctions. We often argue d half a dozen applications for an injunction ever y morning of the week. One summer I tried sixt y contested contempts. We were in court as often a s legal aid lawyers or assistant district attorneys. Tom Kiernan turned over to me the fair trade work for Eastman Kodak, and I also ended up trying damaged film cases for them . These came on before Civi l Cour t jurie s tha t wer e picked outsid e th e presenc e o f th e court t o the tune o f "Do you know the law firm of White & Case of 1 4 Wall Street? Do you know their partner, Paul G. Pennoyer, J. P. Morgan's son-in-law? D o you kno w Haliburton Fale s the second? " Without thi s kind of experience in volume litigation, I never would have had the training to be "in the zone," despite the huge volume of other work that occu pied those early years. Although I desperately needed the modest salar y paid to associates in those days, my motivations were not monetary. I hoped someda y to be a partner an d thought that a partnership shar e would cure all my financial worries. My ego, my admiration fo r my seniors, my pride, and my desire for the praise of those seniors and of an occasional client drove me to do my best work. I thought ou r kin d o f work was the finest play under th e sun, and I gave it my all.

3 EARLY FAMIL Y AN D PROFESSIONAL GROWT H

Kak tells what I am sure is an apocryphal story: one Saturday morning I slept in so late that I was still in bed when my tactful mothe r came to call (never before te n in the morning). Hearing her voice below, Kak says, I leaped up, pulled on pants and a shirt, escaped from th e side door of our bedroom int o th e baby's roo m nex t doo r an d called out , "Coming , mother. I'm just changing the baby." Kak further insist s that I couldn't even fold a diaper right, let alone pin it on without gougin g strip s of skin an d causin g a child t o caterwaul . That thos e accusation s ar e a bit embellished , Ka k will admit ; sh e ca n make a good stor y with prett y flims y evidence . But the fac t i s that we made th e deliberat e decisio n (o r arrived a t it by default mor e likely , because it was the almost universal custom in the 1950 s and 1960s ) tha t Kak would keep the house, raise the children, and devot e all her talen t and energ y to being mother an d wife, and I would be the breadwinne r and be free t o be the best I could a t whatever I did. The idea of mixing these roles, with Kak diluting her attentio n t o the children s o as to ear n some money or pursue a career of her own, or of my diluting my attention to the law so as to spend more time with the children an d give Kak more freedom, di d not occur to us. That Gladstone was a long commute merely exaggerated the result of our choice, but out of it came my growing feeling that my professional advic e was sound and that I could give it with assurance , and a correlative dwindlin g confidence i n my ability to advise soundly on family matters because I was certainly not the expert . 35

36 / Early Family and Professional Growt h

Armed with good nature and courage, and rejoicing in our wonderful an d useful children, Kak has never complained. Kak's undying love and loyalty surrounded an d supported me through whatever rough spots there were. I met Katharine Ladd in October 1940 , bright, beautiful, kind , funny , and, as it turned out, loving. She stood five foot ten with ash blond hair, a slim waist, and trim ankles . Her face was strengthened b y character an d humor. We shared the same standards and religious feelings, except that Kak had a sense of loyalty that amazed me until I, too, absorbed it. I loved her at first sight, and the third time I asked if she would someday be my wife she said yes. It was February 20 , 1941, a week before he r twentiet h birthday. The next September, after a course designed to make naval officers i n ninety days, I was commissioned a s an ensign. Our families then allowe d us to announce our engagement. Many months previously I had called on Dr. Ladd, the chief surgeon of the Children's Hospital in Boston, who had rowed o n the Harvard crew s of 1900 , 1901, and 190 2 and who, with hi s large frame an d kindly manner, was perhaps the most respecte d ma n i n Boston. In awe at my own temerity, a dilettante junior a t Harvard, without eve n a sure idea of how I would eventuall y earn m y living, I called upon hi m i n his office t o as k him, in the old-fashione d phrase , for hi s daughter's hand. Getting past his formidable nurs e to see him "on a private matter" but not as a patient did not do much to stop my knees fro m trembling. When I finally got to blurt out my message, he got up from hi s desk, put hi s arm o n my shoulder an d said , "I like the cut of your jib." I had respecte d him before, but fro m tha t momen t o n he was one of my heroes. Encouraged, I went dow n t o reveal to my own parents a course that I did not se e clearly myself and that I knew they would view as the greatest folly . My mother describe d th e scene later; a lad of twenty-one, who looked muc h younger , standing before a stern fathe r an d utterin g cliches like "two can live as cheaply as one." The war , however , gav e u s th e opportunit y t o ge t marrie d o n m y ensign's pay. It also gave me time to grow up and to experience command. For four years at sea pay, I served in converted yachts in the Atlantic an d then across the Pacific to Australia, Milne Bay, the Admiralty Islands, and Leyte Gulf. Then finally,it was over.

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My heart bursts to tell of getting home to Boston an d finding Kak , of seeing Nancy, by then two years old, of tears flowing dow n my cheeks as we bought and ate ice cream cones. After a trip to Maine to stay with my parents, we returned to Boston to find a real celebration. It was V-J day. The bomb had been dropped. The war was over. "O frabjous day ! Callooh! Callay!" we chortled in our joy. I found I had enough points to be discharged, and because I was on leave awaiting assignment, no obstacle stood in my way. I did it fast. In on e miraculousl y effectiv e day , I got admitte d t o Columbi a La w School and Kak and I rented an apartment nearby for seventy-five dollar s a month. Through Kak' s superb management an d the fact that she never spent any money on herself, we made ends meet. She went to the hospital the night before my last first-yearexamination, which would decide whether or not I would make Law Review, and the next morning produced a healthy and wonderful boy, our son Hal. How marvelous are the ways of the Lord. By now I was fully involved in my share of cases as soon as they arrived in the litigation departmen t o f the firm. The lawyers of my time develope d techniques o f preparing for tria l by going to the heart o f the issue: Our client Swift had been the target over the years of a good many trichinosis cases. The leading case in the Court of Appeals recognized that by cooking pork until it was well done the disease could be avoided, but it permitted recovery i f th e plaintif f testifie d tha t th e mea t wa s cooke d unti l i t appeared t o be well-done. Swift wanted the law clarified i n two respects: One, if the meat was, in fact, cooked until its interior was brought to the fairly moderat e temperatur e o f 15 7 degrees Fahrenheit , i f I remembe r correctly, all the trichinae bugs would be killed and it would be impossible to get the disease from tha t bit of meat. Two, based on the life cycle of the trichinae, the onset o f the symptom s o f vomiting an d muscl e sorenes s came at predictable number s o f days after th e ingestion o f the infecte d meat. It was our hope to establish these facts so firmly by way of trial that the Cour t o f Appeals woul d recogniz e the m a s scientific fact s beyon d debate, and the y might for m th e basis in futur e case s for dismissa l o n motion, without the expense and risk of jury trial. The plaintiff, a Mrs. Geraci, came in for examinatio n befor e tria l on e Saturday, poor lady. Chester perfected befor e anyon e else that I know of a

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technique of pretrial examination tha t was intellectually formidable an d very effective. Chester mentally divided the matters to be inquired abou t into fiveor so different subjects . He was a master at asking unobjectionable questions, and he could ask a new question within a split second of the end of the answer or an objection to a prior question. He would ask a question on topic 3, then on topic 2, then on 5 , 4, and 1 . He could remember what questions he had aske d so that h e did not cove r the same ground mor e than once. By this method the witness was screened from seein g the development o f the lines of reasoning. Mrs. Geraci testified abou t the date the meat was bought, was cooked, and was consumed. It was firmly established that this was just one day and that it was a Friday; "I know because I should have been fasting." Mrs. Geraci testified that she used a meat thermometer and that she cooked the meat until the thermometer reache d 220 degrees Fahrenheit. Sh e identifie d th e size , weight, an d pric e o f th e meat . Sh e pinned down the dates when she first felt nauseous and when muscle pains first set in. Because of the sequence in which Cheste r asked about thos e matters, neither sh e nor he r counse l had a clear idea what Cheste r was establishing, but as soon as the examination was typed up, under Chester's direction I used shears and paste pot to divide the issues and rearrange the questions answered under each category in chronological order. We hired a laboratory t o coo k a piece o f mea t exactl y th e siz e an d weight of Mrs. Geraci's, taking pictures at various intervals. The picture of the meat when the inserted thermometer reache d 15 7 degrees Fahrenheit showed a very pink, juicy piece of pork, which the lay person migh t no t think was safe. The one at 200 degrees Fahrenheit looked overcooked, and the one showing an interior temperatur e o f 220 degrees Fahrenheit was cooked to a crisp. Trichinae are little worms that when first swallowed are harmless, as our expert, a professor fro m th e Harvard Schoo l of Public Health, testified . They breed i n the human stomach , however, and produce thousands of new little worms. These are carried by the bloodstream int o the muscles, where they eat small holes. They eventually die and are encapsulated by a defense mechanism o f the body. If they get to the heart muscles in quan tity, they can be fatal. It takes about a week for the worms to multiply, and it is the rather sudden presence of a lot of new ones in the stomach tha t causes nausea. It then take s some days for th e little worms to get to th e

Early Family and Professional Growt h / 39

muscles and start biting to cause the pain. The dates Mrs. Geraci gave for her symptoms were too close to the day she ate the meat for it to be possible for that meat to have caused her disease. That all sounds pretty good on paper, and it would, we felt, convince a court to set aside a verdict and set up an appeal. We were not so hopeful of getting the jury to agree because the doctor's testimony was pretty gruesome. He was foreign-born an d spoke with a thick accent that made his testimony about th e "worms copulating in the stomach" sound particu larly revolting. However, Mrs. Geraci identified th e third slide , on which the meat was burned to a crisp, as how her meat had looked. We put th e expert on immediately. He opined that one could not contract the disease even from mea t cooke d a s the first slide showed an d tha t th e timing of Mrs. Geraci's symptoms indicate d sh e did no t ge t trichinosis fro m an y pork she ate on Friday. Justice Thomas E. Morrissey, Jr., gave a fair charge . Chester did a masterful summation , and before the evening was over the jury came in with a verdict in the defendant's favor . There could be no meaningful appeal , so our client' s plan t o get the law straightened ou t was not achieved . As the years unfolded, however, it appeared that we had won an even greater victory. In the next twenty-five years, no plaintiff i n the five boroughs got sick from eatin g Swift's ham, pork, or even sausage, although othe r mea t packers continued to get sued. Walking alon g th e street , usuall y t o mysel f bu t sometime s aloud , I asked question afte r question , practicing Chester's technique of having a new question always at the ready. With David Hartfield I helped protect the Collier Company from attac k by the SEC. The chief sourc e of revenue to Collie r was from th e sale of their encyclopedia s an d textbooks, but the y were most associate d i n th e public mind with Collier's magazine, a competitor of the Saturday Evening Post Around 195 5 Collier issued debentures to the public that were sold through underwriters and that netted the company fifty million dollars at par, which at that time was a fair amoun t o f money. Shortly after issuin g the debentures, Collier, tired o f losing money on the magazine, closed it down. They just mad e u p thei r mind s an d di d it . Someone a t the SEC thought th e company had faile d an d starte d a n investigation just a few days before Christmas . The SEC was so excited about what they thought

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was a deliberate fraud o n the public that they insisted on holding a hearing on Christma s Eve. David and I attended an d began to set the recor d straight. By New Year's Day the market was doing it for us; the debentures were selling well above issue price and continuing to advance. The public recognized that stopping losses on the magazine was a good thing. But the SEC did not want to give up. They contended that, good or bad, the intention to close the magazine must have been formed befor e th e debenture s were sold and should have been revealed in the prospectus. It was fraudulent not to do so, they insisted, and fraud mus t be punished! After a lot of testimony and skirmishing, we found ourselves one day in the office of the assistant head of the enforcement division . David pointed out that there was basically nothing the SEC could do to us. Criminal proceedings would not stan d up , and civil proceedings were useless because the basic remedy the SEC could order was rescission: give the money back and swallow your securities. If we offered suc h a course of action, everyone would laugh at us because they could sell the securities for more than the price we could be made to offer (wha t they had paid plus interest). David said , "You remind m e o f a little boy in a field, with a popgun with a cork in it, attached by a string so it won't get lost. We're like a rabbit you're trying to shoot but your string is just too short." The SEC lawyer said, "Well, I'll stipulat e to this: You're a nice rabbit. " Nevertheless, a hearing had to be conducted. It took place before Daniel J. McCauley, as hearing officer. Th e SEC was trying to establish, in the fac e of the facts, that Collie r had actually made its decision abou t closin g the magazine befor e issuin g th e debentures . I t woul d no t hav e mad e an y difference, since the closing was only good for the company, but we didn't want the facts distorted. A lot of hearsay and otherwise incompetent evidence was offered b y the staff. I always objected, even though an administrative hearing officer coul d let in the kitchen sink if he chose. The hearing officer sai d to me one day, "Don't you think I can recognize hearsay evidence , an d don' t yo u kno w tha t I le t i t i n jus t fo r eas e o f administration? I won't pay any attention to it unless it's proved by something else." "Oh, I understand that, your Honor, but you may not be the last word. The people upstairs [th e commissioners] wouldn' t know hearsay if they tripped over it, and I'm keeping this record straight."

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During the time we were in Washington, the former publishe r o f Collier's was with us as client representative. He knew everybody. We met the publisher o f the big Los Angeles daily whom Time magazine had onc e described as "an aging wonder boy," and Chief Justice Warren, an old L. A. prosecutor, came for drinks with him. David and I had a ball. Our Collier man said of another publisher that he performed a valuable public func tion by reminding our youth of exceptions to the legend that any American boy can become president of the United States. One o f th e target s o f th e Collie r investigatio n wa s th e investmen t banking firm tha t ha d helped plac e the debentures . Believing that the y were making a "private placement, " they had no t registere d the m wit h the SEC. A "private placement" became a registrable "public offering" if the securitie s were peddled t o mor e tha n abou t twenty-fiv e people ; at least that was the SEC's view. There were only twenty-six purchasers, so the investment banker s though t the y were pretty safe. But counse l was sure they must have offered th e debentures to a few more people than the eventual twenty-si x purchasers. With thei r usua l fine-tooth comb , the SEC investigator s ha d foun d a numbe r o f peopl e wh o sai d the y ha d indeed been offered th e securities. All of these possible offerees wer e customers of one Dickie Pistell, a broker working for the investment bankers, whose nickname, "Cupcake," reflected hi s shape. The SEC didn't spen d the mone y t o subpoen a th e third-part y offeree s t o testify , bu t instea d called Cupcake an employe e of a party to the investigation t o try to get an admissio n fro m him . Cupcak e spen t on e afternoo n o n th e stan d admitting tha t t o certai n o f his customers h e had mentione d th e existence of the debentures, believing, he said, that h e had a n obligatio n t o inform them of the fact that the securities were being issued, but he didn't try to sell them. Q. And what did you say to customer number one? A. I told her that Collier's was a very fine company [here Cupcake began to smile ] an d tha t ther e was an opportunit y [hi s hands mad e a n expansive gesture] to purchase some debentures with a very good rate of interest that were absolutely safe [her e the counsel for th e investment bankers placed his head in his hands] an d that they had this wonderful convertibl e feature that gave them the upside potential of common stock but no downside risk.

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Q. Did you offer to sell her the securities? A. Oh , no. I just informed her of their existence. McCauley said sternly, "I will determine that. We will recess now and the witnes s wil l resum e th e stan d promptl y a t te n i n th e morning . Remember, sir, that you are under the orders of the court. You will be here at 10:00 A.M. sharp, and do not discuss your testimony with anyone." When th e next morning came, we all assembled i n the hearing roo m and waited. There was no Cupcake. McCauley, who joined SEC lawyers in believing that the witness had been deliberately lying in his statement that he had not offered th e securities, was sure the witness was about to take a plane to Brazil. McCauley kept trying to get a marshal to issue some form of body arrest and block the airports. The rest of us could see that Cup cake had been instructed no t to offer th e securities to his customers bu t was such a salesman by nature that he couldn't help himself. His state of mind mad e no differenc e t o the outcome , and poo r Cupcak e probabl y believed that he had obeyed his instructions. His conscience wasn't bothering him, I was sure. Indeed, those that held this view were correct, for at about 2:00 P.M. he blew cheerily into the courtroom. "You won't believe what happened t o me," he said, all smiles. "Take the stand. You are still under oath." "Yes, sir." "You were ordered to be here at ten this morning. You have wasted the time of this tribunal an d o f all these busy lawyers. You are in contempt . Why weren't you here as ordered?" "Just what I've been trying to tell you. You won't believe it." And Cupcake launched into the story of his morning. He had gotten into his little Karmann Ghi a sports car on that sleety morning and had driven to Trenton in the dark to catch the 7:10 to Washington, due to arrive at Union Station right near the SEC at 9:35. When he parked his car, he tried to ope n the door; the sleet had frozen it shut. He tried to bump the door open with his shoulder, but i t wouldn't budge. You could see Cupcake's huge bulk wedged behind the steering wheel, wobbling against the door. He tried to attract attention by beating his fists on the window. Flab, flab. He tried to shout, but no one came. He repeated his efforts al l morning. Finally, the

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sun came out, the ice melted, and he emerged just in time to run for a train and hop aboard. We were all laughing so hard that we couldn't conceal it, and even McCauley, who was a good sort at heart, finally smiled. Cupcake resumed his testimony to recite what he had said about the debentures to customer number two. The ideal salesman continued his tale. Cupcake's counsel, F. Van Siclen Parr, Jr., was a fine lawyer who ha d worked hi s way up from a small practice to the big time. He eventuall y became the leader of a major Ne w York firm, but when he started out o n his ow n h e too k whateve r h e coul d get . Onc e h e hire d a detectiv e t o shadow the beautiful youn g wife of a suspicious old client. The detective returned with the advice that that young lady was loose as a goose. "Well, let's not characterize, " said Van Parr. "Let's talk evidence. What did you see with your own eyes?" "See," said the detective, "I got pictures." "Oh, good. Let's have a look." "There, that's her i n bed with a guy." The picture was indeed o f tw o people in bed. "Who's the guy?" "That's me," said the detective. "Get out of here and never show your face again." What fun we had in the old Willard Hotel swapping yarns. The SEC never admitted that they were wrong about Collier, but after a time they just faded away. They did, however, keep after poor Cupcake. Chester Bordea u an d I were assigned to The Solicitor fo r Hi s Majesty' s Treasury against Banker s Trust Company . A British subject , Mrs. Maitland-Tennant, had made large deposits in Canadian and U.S. banks. During Worl d Wa r I I Englan d nationalize d th e oversea s deposit s o f it s subjects in order to have currency available for the purchase of war materials. Mrs. Maitland-Tennant too k th e position , "If th e deposi t i s now yours, go and take it, but don't ask me to help you." Bankers Trust Company would pay only on its depositor's instruction . They were offered a bond an d indemnity , but the y said they didn't giv e away their depositors' assets just because it would be without substantia l risk to themselves. They said to the Solicitor, "If the money is yours, establish you r righ t t o i t i n court. " S o he sued . We denied hi s righ t t o th e

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deposit. We also defended o n the ground tha t the Bretton Woods Agreement no w outlawed this sort of interference wit h currenc y transactions. We put i n issu e the existenc e o f Ne w York Stat e publi c polic y agains t seizure of assets. The Canadian banks defended on, among other grounds, the Statute of Westminster, by which laws passed by Parliament no longer affected th e Canadian provinces. I suggested to Cheste r that we plead as a first, separate, and sufficien t defense the Declaration of Independence in full, beginning: In Congress July 4, 1776. The unanimous Declaration o f the thirteen United States of America. When in the course of human events it becomes necessary for one people to dissolv e the political bands which hav e connected the m wit h another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind .. . and so on, on through "created equal," Governments are instituted among men, deriving their just powers from the consent of the governed, and includ e the sin s of Georg e the Third, which mad e i t their dut y t o throw off such government, and the declaration o f freedom an d publication of their Power to levy War, conclude Peace . .. [an d to do all other things] Independent states may of right do, pledging to each other our Lives, our Fortunes and our sacred Honor. Chester said, "No, our general denial put that i n issue. It is covered by the General Obligations Law." It was one of my great disappointments. I admired Mrs . Maitland-Tennant; sh e was a sturdy soul. She disliked looking out a t the golf course that surrounde d he r property and "seeing all thos e idl e me n i n thei r shirtsleeve s disportin g themselves, " so sh e bought th e gol f cours e an d close d i t down . Sh e resisted th e servic e o f

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process. A Writer to the Signet ( a very high breed of Scots lawyer) had to make a long affidavit abou t serving a bundle of laundry in her chauffeur driven car before actually finding her. Oddly enough , th e Solicitor , wh o eventuall y cam e t o serv e He r Majesty's Treasury , never dared bring the case to trial, fearing, no doubt , that he might get an independent Irish-America n judge. After Mrs . Maitland-Tennant died , it took him years to figure out how to get around th e fact tha t although her executo r was willing to give Bankers instructions , he couldn't qualify until he paid the death duties, and he couldn't pay the death dutie s until he collected th e money. In th e meantime we got th e court to deposit the fund i n an interest-bearing account , the earnings on which paid everyone's counsel fees. It was a famous victory. Another o f my earliest case s began wit h a cable to Bankers Trust fro m Italy announcing th e appearance o f Lucy Spitzmuller o n th e scene. The ashes of Morton Oti s rested o n the mantelpiece o f Hugh L . Thomson, a senior associat e in trusts an d estates . He had been unabl e to get my old friend, Dump y Davidson, the rector o f the churchyard i n Rhod e Islan d where Otis's ex-wife had wanted him to be buried, to dig a grave. Morton Otis had set up a small trust that, after his death, should be distributed as he appointed b y will or, if there was no will, to his brother. The Otise s had separated and divorced (he to live with Lucy Spitzmuller in Italy) but during th e war Mrs . Otis had take n Morto n bac k into he r hom e a t La Tour d e Peiltz in Switzerland . He had die d there, and th e justice o f th e peace at de Peiltz said Mrs. Otis had told him formally that her husban d had died intestate. His brother Sydney was dying of cancer and was without funds . Ou r client , Bankers Trus t Compan y a s trustee, investigate d quite thoroughl y t o se e whether a will existed, and afte r waitin g four teen months after Morto n Otis' s death, Bankers Trust decided that non e did and paid Sydney the twenty-some thousand dollar s that constitute d the corpus of the trust followin g th e sale by the trustee of the only asset of the trust, stock o f the Gillett e Company . This was not a lucky trust . The truste e ha d sol d th e Gillett e stoc k a s soo n a s i t ha d investmen t power ove r the trust fo r th e proper reason s tha t i t was its duty to pre serve the assets for deliver y and tha t having the entire trust investe d i n one securit y wa s highl y risky . Withi n a mont h o f th e sale , Gillett e

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announced th e purchas e o f th e Ton i Compan y (Whic h twi n ha s th e Toni?), and th e stoc k starte d a phenomenal ris e t o five times it s sal e price. Lucy Spitzmuller di d not com e empty-handed. She was armed with a will leaving everything to her and formidable counse l in the shape of Les Arps assisted by Joe Flom. They later became prominent as Skadden Arps Meagher & Flom, probably the richest lawyers in American history. They asserted, backed by the leading text book, Scott on Trusts, that a trustee was absolutely liable for payments made under mistake of fact or law even though that mistake be entirely reasonable. My first assignment was to see whether that view of the law by the dean of trust academicians, Austin Scott, a very respected professor a t Harvard Law School, could be disproved. Mr. Marden suggested I look at the English cases first. He admitted that he had already asked one of my associates to search the English cases without result , so this might be a wild goos e chase. Within a half hour ou r luck started to turn. I came across a 178 8 English case, Cothay v. Sydenham (2 Bro. C.C.), where the Lord Chancellor, with a very similar se t of fact s befor e him , said that ther e mus t b e some inquiry to find if the trustee had notice of the missing instrument : "It is extremely clear, that where there is a power like this, ambulatory in its kind, if a trustee has paid unde r a prima facie title without notic e of any better title he could not be charged again." I ha d neve r befor e hear d o f a n "ambulatory power, " but th e phras e became engraved on my heart. We unearthed quite a few other cases and some statutory support fo r ou r position and , equally important, became convinced that we could see just where Professor Scot t had been misled . The fact situation s o n which he relied, we asserted, were those in which the trustee was looking for heirs or next of kin. In old England, when only legitimate heirs o f the blood counted , the trustee coul d find ou t easil y whether h e had adequat e informatio n t o mak e payment t o those heir s whom he knew; if he did not, however, he had the option of citing all the heirs and nex t o f kin an d publishing th e citation, in which cas e all the gossips in town an d the possible missing heir would have notice. If afte r the citation had been published, no extra person appeared, he could safely pay the original group, but if some other folk showed up he had only to include them. Hence, it was not unreasonabl e o r unfai r i n that kin d o f

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case to hold him to publish or to pay at his peril. This reasoning did not, however, extend to an instrument that might be known only to the maker and some unconnected witnesses in a foreign country . As the Lord Chancellor had said , "The trustee migh t very naturally expect that wheneve r such a deed was meant to have effect give n to it, it would be lodged in his hands who was the proper person to have custody of it." Lucy Spitzmuller was not a rich woman, so she did not want to come to New York from Ital y and live in a hotel while her cas e went o n forever . Orison, with the bank's consent, said he would consider trying to agree on a statement o f the facts. Joe Flom and I were assigned to draft a stipulation of fact. Orison told me that I could assent to the inclusion of any true facts Lucy wanted to put in, provided I got a sentence saying that Bankers Trust had acted at all times in good faith. Joe and I drafted fo r a couple of days and produce d a stipulation tha t recite d al l the relevan t fact s an d included th e good faith clause . Marden an d I produced a memorandu m in support o f judgment fo r th e bank o n the stipulated record . Marde n liked my draft an d asked whether he could call me Hal if I called him Orison. "That's the way we barristers do it," he said. My pride was somewhat deflate d som e months later. I picked u p th e New York Law Journal a s I did every day, and looked to see whether ou r case had been decided by Dennis O'Leary Cohallan, the justice to whom it had been submitted. It had. He went against us on every point an d held that Luc y wa s entitle d no t onl y t o th e mone y tha t ha d bee n pai d t o brother Sydney but to the five-times-greater amount that the bank would have collected had it not sold the Gillette stock. We appealed a t once. An area that we had not touched i n the origina l briefing wa s conflict o f laws. Was there a relevant jurisdiction wher e the will would no t eve n operate on th e trust? In the interest o f simplicity, I have, so far, shorthanded th e actual direction i n the instrument. It read , "pay... unto such person or persons as said first party may by his last will and testament designat e and appoint o r . . . t o such person o r persons as may be his next of kin under th e laws of the State of Connecticut." Now under Connecticu t law, as opposed to the law of New York, in order for a will to operate on a trust i t is not sufficient fo r the will to say, "I leave all the rest o f my property to Lucy," because Connecticu t la w looks at th e trust a s no longer being the property of the grantor. In order for the will

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to affect th e trust it must mention it , saying, "I hereby exercise the power created by the trust instrument of such and such date." Since Morton Oti s had no t live d i n Connecticu t o r ha d an y contac t with it for a long time, and since the trustee was Bankers Trust Company, a New York corporation havin g its principal offic e a t 1 6 Wall Street, and since we had a New York statute that was helpful o n the payment and several New York cases that we also relied upon, I could not find a principled way to argue that Connecticu t law , which gave us no help in those areas, should be applicable to the disposing clause. Orison, however, enlisted Jack Johnston fo r this chore. Jack had been a year o r s o behind m e a t Columbi a La w School. He was a real hero o f World War II; leading men forward i n the face of enemy fire, he preceded them throug h a min e field—or a t leas t par t wa y throug h it . A min e exploded unde r him . Both his legs were amputated, on e just abov e an d one just below the knee. Jack learned to walk on prostheses and indeed to play tennis and golf. His only noticeable difficulty wa s that, although h e could clim b stairs , he could no t negotiat e th e ramp s tha t th e Veterans Administration insiste d be installed i n the house that a grateful natio n helped him to purchase. Working for days in the library, Johnston constructed a modern view of conflicts, somewhat novel, shown in later years to be entirely correct bu t then almos t unprecedented . H e put togethe r a n argumen t tha t mathe maticians woul d hav e calle d a n elegan t solution . Th e conduc t o f th e trustee would be governed by its home law, but the direction to whom to pay would be governed by Connecticut law, the law of the original domicile of the settlor (h e never having acquired a new one). That was obviously the law he had in mind in drawing that clause, as shown by his use of it to determine his next of kin in the very sentence in question. Courts had not yet articulated the theory that different part s of a problem could be ordered by different law s looking primarily to the interest of each forum i n the outcome of that part of the puzzle. Before a jury, Jack would wear his silver star lapel button an d carr y a cane. Once, when he went to trial unexpectedly, the White & Case messenger arrive d i n the courtroom wit h them an d sai d in voice audible t o the jury, "Here, Mr. Johnston, here's your cane and your silver star." Dear Jack, he would explode with laughter when he told a story on himself.

Early Family an d Professiona l Growt h / 49

The stipulation o f facts i n Spitzmuller contained just enoug h detai l to support thi s conflicts argument , s o we went t o the Appellate Division , First Department, with another string to our bow. We polished our briefs till they shone. I can still see Orison's rewrites winding around the margin of the page proof. His striving for perfection di d not seem to conceal any character defect . Orison argued in that wonderful courtroo m that his father-in-law, Justice Joh n V . McAvoy, had grace d fo r man y years . The judges listened , asked questions , and listene d t o an d questione d Le s Arps. We left wit h high hopes . Oriso n explained , however , tha t on e coul d no t tel l muc h about the outcome from th e court's reaction to oral argument. In the fullness o f time down came a unanimous decision finding for us on al l grounds. The bank had acte d properly. Even if Morton Otis' s will was intended to exercise the power, it came too late; the bank could not be charged a second time . Furthermore, Connecticut la w did appl y to th e disposing clause and the will did not exercise the power. Finally, the bank acted correctl y i n sellin g th e Gillett e stock , which, unde r th e circum stances, it had a duty as well as a power to do. Great was the rejoicing. The Appellate Divisio n decisio n wa s eventuall y affirme d b y th e Cour t o f Appeals withou t opinion . I n spit e o f th e enormou s amoun t o f time , effort, and skill that went into this case, and its usefulness t o fiduciaries as precedent, Orison told me we billed Bankers Trust Company only twentyfive thousand dollar s becaus e o f th e modes t amoun t o f mone y i n th e trust. In those days the Litigation Departmen t wa s a service area of th e firm, necessar y bu t usuall y regarde d fo r billin g purpose s a s a bargai n basement. This did not, in those day s (a s I later learned) no r fo r man y years thereafter, affect th e percentage of firm profit enjoyed by each litigation partner , who received, in general, the same percentage a s the othe r partners admitted in his time. Of course, while Spitzmuller was progressing slowly through the courts, some years passed, and we were all busy with a hundred othe r matters . But the case holds a special place in my memory. I used to have lunch a t the Downtow n Associatio n abou t ever y othe r wee k wit h Richar d S . Emmet (m y late college roommate's father) , an d h e would as k me how the case was going. He didn't mak e any suggestions, as I remember, bu t laying out the problems to a fresh intereste d an d trained min d was good

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in itself. Moreover, I had time to learn every step of the way. The jurisdiction o f th e Cour t o f Appeals o f th e Stat e o f Ne w York i s an enigm a wrapped in a mystery inside a riddle. It is a court of limited jurisdiction. It is, by the state constitution, confined to reviewing questions of law in final judgments, with certain exceptions . Its definition o f finality is concealed in hundreds o f only partly reported decisions , and its power to review depends upon whether there was a reversal of facts found in a court below and whether the decision was an exercise of discretion in the prior court . The actual wording of the order entered by the Appellate Division coul d affect th e jurisdiction of the court. I learned so much about this in Spitzmuller that I was able to make use of it thirty-five years later. I now began to spend much of my time defending corporations or their officers i n stockholder an d other clas s action suits . I woke up every day ready to take on the world, confident i n my profession. We had breakfast together as a family; then I headed for the city. Once, for a week, I tried driving to a railroad station twelve miles away instead of one and a half, but I was so intent o n workin g ou t the day' s problem s o r emulatin g Chester tha t I kept bumpin g int o th e car ahea d wheneve r th e traffi c slowed down, so I returned t o commuting fro m Gladstone . We were all well and happy; our largest problem was money. With five children, my salary of less than fifteen thousand dollars a year wasn't excessive (Orison told me if you rose above that you probably had missed partnership and had become a permanent associate).

4 ANTITRUST AN D BANKRUPTCY CASE S

All th e wa y downtow n o n the subway , I was lik e an old hors e i n the pound, going round and round in my head with possibilities: why did the Colonel summo n m e down t o his office fro m Majo r Benjami n H . Namm's office ? Nam m an d I had bee n preparin g fo r trial whe n the Colonel's call came in. "Can you come immediately?" he requested. Well, it was near lunch o n a Wednesday, the normal da y for firm meetings, so there was a chance this might be news of partnership. I was anxious and excited. I had been at White & Case from the firstday of my professional career, October 20,1947, and now eleven years later, I hoped the lightning would strike this year. But then again , in the normal cours e of events, the Colonel called me reasonably often. And then again, he would normally have left a message with my secretary and not bothered t o track me down. But if it were an important new matter . .. Ed Barton, David Hartfield, an d thre e associate s from othe r depart ments had become members of the firm in 1956. Orison made it a point to tell me that I should regard this as an increased opportunity for part nership, not a fillingof the available slots. It indicated that both the firm and it s trial practice were growing. Of course, Orison carefull y pointe d out that the future wa s always uncertain; there could be no guarantees , but I was doing well and still in contention for partnership. From tim e to time I got offer s t o work elsewhere . Eastma n Koda k offered m e a position i n Rochester. Mr. Emmet discusse d the possibilit y 51

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of a partnership i n Emmet Marvin an d Martin. My friend Davi s Given's father asked me if I would be interested in the legal department of American Brake Shoe. I discussed all of these offers with Orison. He told me if I was fond o f Mr. Emmet I should talk further t o him. My friends an d my ambitions, however, remained at White & Case. Round and round my thoughts went. I was utterly distracted as I made my wa y dow n Broadwa y t o Whit e & Case's office s an d o n u p t o th e Colonel's office o n the twenty-sixth floor. Irving S . Olds, with shor t gre y hai r parte d severel y i n th e middle , rugged of build but worn and seldom smiling, who had recently returned to the firm after servin g as chairman a t U.S. Steel, sat with the Colonel . Something was serious. The Colonel looked up from his desk and smiled. I knew. Mr. Olds told me C. Sims Farr and I had been elected to the firm to take effect Januar y 1,1959. The Colonel congratulated me and said he hoped I would accept. "I do," said I. He and Mr . Olds explained somethin g abou t th e partnership agree ment, but I didn't take anything in. A lifetime ambition had been realized. Ecstatic, I wanted only to call Kak. I shook hands with my new partners and go t Ka k eve n befor e Virgini a Marde n called . Sh e almos t jumpe d through th e phone with joy. It was fourteen year s since we had started at Columbia. They had been happ y years, but thi s was the onl y job I had wanted an d th e onl y way I knew of eventuall y gettin g ou t o f deb t an d continuing to educate the children. Such a moment comes only rarely in a lifetime. Having Kak say she'd marry me and seeing the children a t birth with all their fingers and toes intact and breathing normally were the only superior events I had experienced. Orison cam e in to congratulate me. He said he had waited a long time for thi s day. I can't eve n remember whethe r I went around th e office t o thank m y ne w partner s o r whethe r the y cam e t o se e me . Euphori a reigned. I had affection an d esteem for every one of those men, people in whose hands I was glad to place my life, my fortune, and my sacred honor. I knew I was doing just that an d they were doing the same with me . We were partners in the great firm of White & Case. With partnership cam e the privilege of attending the partners' meetings, over which the Colonel or Olds usually presided. Olds's pedestria n

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meetings contrasted wit h those of the Colonel, who led us through ou r business with a great sense of fun. One day, when the Colonel was presiding over the long wood table around which the partners gathered, Henry Mannix, our older partner and renowned worrywart, spoke up: "If we have a few minutes, I'd like to get your advice about a question that has popped up in a small estate of about three million dollars." Colonel Hartfield, signaling to Henry that this was not the time for a long, drawn-out exegesis, said, "A small estate of about three million dollars; that reminds me of one of Lowell Wadmond's short speeches." Lowell led the laughter. At the time I achieved partnership, I was still of the view that one could be, as Harry Tweed once said, "A Compleat Lawyer. " To this end I was a notary public always able to take an acknowledgment, an d I carried th e name, address, and telephone number of a bail bondsman in my wallet so I could help any client quickly get out of jail. In the course of my years as partner, I went on to nearly accomplish just that; I became the best trial lawyer I could. I was lucky enough as a generalist trial lawyer to try cases that di d no t fit into anyon e else's particular bailiwick . Like every othe r lawyer worth a damn, I knew that where possible, cases should be settled. Lawyers have an obligatio n t o settle, and frequently , partie s ca n achiev e through settlemen t "win-win" results that solv e problems. Ideally, these disputes should be recognized a s early as possible and put int o a dispute resolution framework at once. I dislike, and believe to be unprofessional , the lesson some take from trial by battle—using litigation exercises not to prepare for tria l but to wear down the other side . Our Englis h friends i n the early Victorian er a clung to one good idea from th e ancient trial: the case should be tried in a single day. Courts, like modern-day legislatures, stopped the clock to accommodate the fiction of fighting only till the stars appear in the evening. Our complex many-issue cases do not permit tha t any longer, but using litigation steps only as a means of preparing for trial certainly hastens the day. My philosophy is that "litigators" are the picadors of trial practice. Trial lawyers, on the other hand, are the matadors. They need to remain in control and not let the preliminaries take over. I never foun d a case too nutt y to defend . On e of my odd one s was a criminal assault case before th e now defunct three-judg e Specia l Sessions Court; we got an acquittal for a bank clerk who had left his cage to accost a customer wh o had calle d him a Nazi. We defended agains t a bar an d

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grill tha t ha d serve d a fifth of whiskey to thre e companion s i n a back room. After they had finished the bottle, they got a bill for a quart instead of a fifth and tore the place apart. The bar blamed a mistaken label on the bottle for the incident. I tried that case well enough to get a modificatio n in the Appellate Division, Second Department, reducing the verdict to the difference i n price between a quart and a fifth, a rather small sum. I would have gotten that result at the trial level, I think, except that I worked until late in the night before trial, and in order to stop asking brilliant questions in my mind, I drank myself to sleep. The next day I smelled like a brewery and looke d like a bum, but a t least I was up and fighting. Go d had ha d pity on th e leas t o f thing s aslee p upo n a chair. Although alcoho l i s an occupational hazard of the trial lawyer, it never was a temptation t o Orison or Lowell, and at that time I did not recognize it slowly ascending in me. I wil l barel y mentio n th e sui t b y th e faile d promote r o f a speciou s attempt t o play fast an d loos e with th e rule s o f amateu r golf . He too k nothing by his writ. Fools rush in! We also struggled wit h case s going to the jugular. Our long-time client , U.S. Steel, presented us with a series of key antitrust cases in the early sixties. For years, long before I joined the firm, U.S. Steel was a client. Not only had Irving Olds been the company's chairman, but our former associate Roger Blough was chairman unti l 1966 , and ou r partne r Jac k Tennant, general counsel to the company. We couldn't have been closer. When the company started facing troubles regarding price-fixing an d antitrus t issues, which feature d a public dispute between Presiden t Kenned y an d Blough, we were called in. Every three years, from Worl d War II onward, a costly steel strike shut down the industry. The last one had been in 1959 . In the summer of 1962 the industry-wid e labo r negotiation s cam e t o a n impasse . Presiden t Kennedy called everybody down t o Washington an d jawboned a settlement. He thought h e had gotte n agreemen t fro m Roge r Blough, representing th e industry , tha t n o pric e increas e woul d resul t fro m th e settlement. Roger told me, "I'm too good an antitrust lawye r to speak for the industry on steel prices, even at the behest of the president. I know I never even discussed the subject with him."

Antitrust an d Bankruptcy Cases / 55

Shortly after Labo r Day , when everybod y was back in town fro m th e summer holidays , U.S. Steel Corporation raise d stee l prices across th e board by a sizable percentage. The other companie s followed suit . Livid, the president accuse d Roge r of double-crossing him . The conventiona l wisdom in the business world was that Blough should have advanced th e prices in small pieces in August, when i t might no t eve n have made th e papers. That just wasn't the way Roger Blough did things. His motto was "Never say anything that you wouldn't wan t to se e quoted o n the fron t page o f th e New York Times." H e believe d tha t h e ha d ever y righ t t o increase steel prices and that it was his obligation to stockholders to do so. So he did it , fair, square, and openly . Nonetheless, the stuf f hi t th e fan . Bobby Kennedy, as attorney general, personally took charge of an investigation of the steel companies. Nothing immediat e cam e o f th e investigation , bu t befor e lon g th e Department o f Justice discovered a position calle d "product manager. " These folks wer e half wa y between th e sale s department an d th e plan t manager. The product manager recommended the price of the product in his own line. Steel pricing was complicated, and basically the same sheet could be priced more than one way. You could order the grade of steel you wanted, each grade having a basic price. Or you coul d orde r a specifi c chemistry with a n "extra" for s o much mor e molybdenum, for instance . The price ought to be the same for the same kind of steel, whichever way you ordered it. The U.S. Steel product managers, knowledgeable about the business, tended to be better at pricing because U.S. Steel was so large and had a volume of business in almost all kinds of steel. During recent periods of price control, product managers had been called down to Washington to set and to monitor steel prices. They got to know their counterpart s in other companies and worked out ways of preventing extras from bein g misused to extract higher prices. It was but a short step in peacetime to ask the knowledgeable U.S. Steel product manager how much of a certain extra would, in fact, put you into a new grade. Cutting the sheets off the roll obviously was an expense entitled to an extra. A six-foot sheet took two more cuts than an eighteen-foo t one. On the other hand, an eighteen-foot-long sheet , awkward to handle, probably cost more to prepare for shipmen t tha n a six-foot sheet . Where should th e extra s be imposed ? Thes e were question s stee l me n lik e t o

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bandy about . I t was not necessaril y illega l to talk , only to agre e abou t prices. A Florida judge onc e said to Allen Doby of the department whe n h e learned that the United States was suing some companies for exchangin g information an d conversin g about th e prices of phosphate but was not claiming that prices of that commodity had actually been fixed,"Mr. Doby, are you telling me that the Department of Justice is accusing these folks of sitting around the country club discussing the price of'dirt rock'? " "Yes, sir." "Well, let me ask you this: What else is there to talk about down here?" The trouble was, the prices charged by all the steel companies in those days were list prices with applicabl e extras , and ther e had been discus sions. Unfortunately, th e cases then held that al l the government neede d to prov e fo r a jury t o brin g i n an d a court t o uphol d a guilty verdic t against individuals for criminal price-fixing wa s three strands of circumstantial evidence : a comple x pric e structure , identica l prices , and th e opportunity to meet. In a n effor t t o understan d th e laymen's view, I used to hang aroun d bars getting in discussions with the kind of people who sit on juries, trying to persuade them that prices in some industries may be complex but nonetheless were all the same because of perfect competition. I didn't find many barflies wh o would buy that story . Pressures in the industry kept prices uniform, but they were also complex, and at least one of them, U.S. Steel's announced polic y of meetin g an y lower price s anywher e i n th e country by reducing its price on that product acros s the board t o all its customers, "the Fairles s one-pric e policy, " was itsel f though t i n som e quarters t o have difficult antitrus t repercussions , even though i t mad e good Robinson Patma n Act sense. (The Robinson Patma n la w requires a manufacturer t o charg e th e sam e pric e fo r th e sam e good s t o al l customers and exert s a considerable pressure for uniformit y o n prices.) Bu t even when I told my bar companions about the duty for all the companies to treat all their customers equally, I didn't make much headway. I was not sanguine about our chances before an actual jury. The first hurdl e fo r th e governmen t wa s t o ge t indictment s fro m a grand jury. In their first attempt, they had more trouble than anticipated . Two elderly ladies on the grand jury, who lived on the same floor of a n

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apartment hous e as a prominent membe r o f the U.S. Steel staff, told Mr. A., after th e indictment cam e down, that th e grand jury had been dead locked eleve n to eleven on whether o r not t o bring in an indictment o n sheets. The tie had been broken whe n someon e produce d a newspape r clipping showing that som e steel companies (actuall y small melt shops , not primary steel makers) ha d just pleaded nolo to an indictment o n the West Coast. This shifted th e sentiment, and the grand jury voted twelve to ten to bring in that indictment . Other indictment s followe d prett y quickl y afte r th e on e o n sheets : plates, wheels , structural , an d on e other—fiv e i n all . The gran d jur y indicted fe w individuals because most o f the conversation s ha d been a t the product manager level, and the product managers had been called and granted automati c immunity. Nevertheless, the department di d manag e to save one manager in almost every product for personal indictment . Tom Kiernan was in charge of these criminal cases for the office, and he had m e prepare most o f the witnesses for thei r gran d jury appearances . Basically, I taught salespeopl e no t t o tal k s o much bu t t o liste n t o th e question and then answer in the fewest words possible. It drives one's family crazy, but the proper answe r to the receptionist' s question, "Can you spell your name?" is "Yes." On the record you answe r the question actually asked rather than, as in real life, give the answer you know the person wants. Of course, there is an exception to every rule. For example, Bob Bicks, counsel for the chief executive officer o f a company that was indicted in at least four o f the product lines, who was called before the grand jury with automatic immunit y fro m prosecutio n fo r anythin g h e revealed t o th e grand jury , instructe d hi s CE O no t t o limi t hi s answer s t o th e fewes t words possible , fo r on e particula r lin e o f questions . Th e departmen t lawyer, Alan Doby, established tha t th e inquiry was about plates . Doby asked the CEO, "Did you ever discuss the price of steel with anyone fro m any other company?" As instructed by Bicks, he answered, "Yes, the prices in plates , sheets , wheels , an d structural, " an d h e obtaine d automati c immunity on all four of those indictments. Thereafter, Doby always phrased his question, "Did you ever discuss the price o f stee l plates? I mean plates . I am limitin g m y question t o stee l plates. I am not asking about any other product."

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Basically, steel is or was a fungible produc t that, like corn or beans, sells at a uniform price . General Motors had a buyer by the name of Hoogstra, who invente d a syste m fo r gettin g al l th e advantage s o f competition , despite uniformity o f prices. Hoogstra had a point system; two points off for every day of late delivery, one point off for every day of early delivery, five points of f fo r ever y percentage poin t o f breakage abov e 2 percent. Those suppliers who got the lowest points for a month advance d in th e portion o f General Motors's business they enjoyed, an d thos e who go t high points lost market share. I went out to a Ford plant to watch the workers. Each stood in front o f a stamping machine, slathered a steel sheet about five feet by six feet with an oily solution on both sides, picked it up with a pair of tongs, inserted it i n th e stampin g machine , and the n pulle d i t ou t shape d a s the rea r panel of a truck side with a ninety-degree angle from the side to the back, in the middl e o f which wer e two raise d circle s where the braking an d turning light s would b e inserted. The worker looke d a t the shee t a s he picked it up with the tongs. If it had a tear or a crack, he cast it aside. If it was OK, he placed it on a belt. About ten sheets a minute underwent thi s process. The buyer ordere d th e lowest qualit y and thinnes t sheet s capabl e o f undergoing thi s torture. If a company wanted t o ge t more business, it could, of course, at its own expens e use a higher grad e of steel or mor e than norma l care in production. This kind of quality monitoring was an incentive not to offer a discount in price. An economis t a t Fordha m Universit y i n Ne w York b y th e nam e o f Hogan, who specialized in the steel industry, was entirely convinced tha t prices were unifor m becaus e o f th e fungibl e natur e o f stee l an d thes e other factors. Ned Perkins, who moved from Cravat h to Bethlehem Steel, and I talked at some length with Hogan and seriously considered going to trial in one or more of the criminal cases with him a s an expert witness. One added advantag e was that Hoga n was a priest who preferred t o be called "Father" and who habitually wore a clerical collar. Trial always entails considerabl e risks . We all went t o Washington t o discuss with Allen Doby the possibility o f getting nolo pleas. Someone suggested tha t Alle n wa s holding ou t o n permittin g th e companie s t o plead nolo and unfairly trading off possible jail terms for the employees.

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Alan bristled, "Guilt is individual. I am too principled a lawyer to try such a thing." Nevertheless, three weeks later he was before Chie f Judge Ryan saying, "I have been instructe d b y the Department o f Justice not t o accept nol o pleas fro m th e individual s unles s certai n o f th e corporat e defendant s plead guilty." Judge Ryan said, "Mr. Doby, you are too good a lawyer to take that position. You know guilt is an individual matter." Mr. Doby replied, "Yes, your Honor, I said I have been instructed to take that position." Poor Allen. He was a middle-aged man who had been a Department of Justice lawyer all his career. He lacked the courage to try to make it in private practice, but ho w galling it must hav e been. A lawyer's professiona l responsibility is also individual. It is no excuse to say, "I was ordered to do it." Oh, obviously on close calls one can properly rely upon the judgment of a superior, simply because debate cannot g o on forever, but n o lawyer worth his salt should take a position known to be fundamentally imprope r just because of instructions from a senior. In any event, after further negotiations , it was decided that the corporations could plead nolo. In al l of these cases only one U.S. Steel officer ( a very fine man) wa s indicted. We got Whitney North Seymour , then a nestor of the New York Bar, t o represen t him . Whitney' s son , Mike , pulle d th e laborin g oar . Although thi s office r wa s not a churchgoer, h e di d liv e next doo r t o a Methodist bishop who gave him a great character. He had also, like many U.S. Steel people, been a hard worker fo r th e Boy Scouts in Pittsburgh , and he had lots of other good qualities. Whitney, Mike, and he decided to plead nolo, and Judge Edward Weinfeld fined hi m but di d not impos e a jail term. The companies al l pleaded nol o and al l received fines. The maximu m available fine at that time was fifty thousand dollar s so the result was not too bad for the companies. Until at least the late 1970s , executives of responsible companie s di d not think lawsuits against other responsible companies who were suppliers o r customer s prove d useful . The y too k u p executiv e tim e bette r devoted to making money the old way. "We're in the business of deliver-

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ing freight, no t trying lawsuits." So for a long time after 1962 , no privat e suits claiming damages from th e conspiracies alleged in the indictment s were filed. When th e statute o f limitations ha d almos t expired , the receiver o f th e bankrupt New Haven and Hartford Railroa d started an action on wheels. He chose for his lawyer Robert Bork, later a nominee for the U.S. Supreme Court, who was then teaching antitrust law at Yale Law School. Bob Bork wrote a complaint trackin g the indictment an d invite d th e defendants t o fold. With only damages at stake and, as we believed fro m the grand jury debriefings, a strong chance our clien t was innocent, we declined to roll over and play dead. The U.S. Steel product manage r fo r wheel s was an elderly gentleman , already retired, who knew more about stee l railroad wheels than anyon e else in the country. We referred to him as "Mr. Wheels." I interviewed him in New York at his hotel with his wife present ; he couldn't leav e her a t home in McKee's Rock, a suburb o f Pittsburgh, because she was too ol d and feeble. We all wanted t o ge t th e cas e transferre d t o Pittsburg h becaus e w e thought the climate for a trial there would be better. The government had brought the indictments in New York for the same reason, and Bork had followed suit . Plaintiffs hav e a choice of where to sue, and with large corporations that can afford t o defend i n any reasonable place and that have airplanes to transport their people about, it is pretty hard to get a change of venue. Because m y tale abou t Mr . Wheels an d hi s wife adde d som e human interes t t o the fact tha t mos t o f the witnesses and relevan t files were located in Pittsburgh or nearby, I was selected to argue the motion to transfer th e case to Pittsburgh fo r all defendants. Judge Ryan was sympathetic, but after three months, he denied our motion without opinion . That was the last we heard from Bo b Bork. Some months went by and he did nothing. Some years went by and he still did nothing. Finally, he got a call to go to Chicago Law School, where he fit in well. The Chicago school o f antitrus t gre w u p aroun d Professor s Richar d L . Posner an d Bork. They basically believed that competitio n worke d well if you left i t alone. They saw no point i n the government's interferin g wit h busines s decisions on how to distribute goods or on what mergers to make. They

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did not believe sensible business people would really try to cut their ow n prices deeply enough an d long enough t o drive their competitor s ou t of business. The only sin in their book was horizontal price-fixing o r horizontal division o f territory that would restrai n competitio n o n the same level o f distribution , fo r exampl e betwee n manufacturer s o r betwee n wholesalers or between retailers. This view has increasingly been accepted by the courts. It is, of course, popular with business people. Bork, in my view, had set his heart on someday getting on the Supreme Court. Because there were few conservative academics , Bork became a conservative i n ever y field o f law . H e wrot e widely , excoriatin g th e Supreme Court whenever i t made a decision unpopula r i n conservativ e circles. He seeme d sur e someda y th e pendulu m woul d swing , conser vatism would be in, and he would be the only respectable conservativ e academic. He overplayed his hand. After delays Bork got around to getting counsel substituted for him, and after a further delay , depositions i n the wheels case got under way . The prices were uniform, but there was no proof of meetings; the only contact between the wheel makers had been over transportation. The railroad rates for shipping wheels, as for any other commodity, must be published, and the railroads must stick to their rates. When one of our clients used to sue the Bangor and Aroostic Railroad over potatoes that arrived spoiled fro m being frozen, the railroad would always treat that as a demand for an illegal rebate. We had to win a couple of trials to get them to settle later cases on the merits. But when the railroads were hauling their own goods over their own tracks, a different tabl e of rates, which were filed with the ICC but not published, applied. Since U.S. Steel had a large share of the wheel business and a Washington informatio n office , it made it its business to keep track of these unpublished rates and to know with accuracy the point anywhere in the country where a shipment fro m poin t A to point B would leave a competing railroad an d enter the buyer's tracks. The other wheel makers were in the habit o f calling the U.S. Steel transportation departmen t t o seek this information, an d the department usuall y gave it out. Since the practice was that wheels were priced a t the point o f delivery, it was quite permissible to argue that this was information tha t al l the wheel makers needed in order to treat their customers equally and comply with Robinson Patman. Moreover, we were prepared t o assert that U.S. Steel had a n

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obligation to make this information availabl e to its competitors because it had suc h a large share of the wheel market, or at least to assert that tha t was a reasonable, responsible decision fo r a n educated executiv e to take, one that clearly did not indicate a conspiratorial intention. In a n effor t t o boos t hi s factuall y wea k case , th e railroa d receive r sought t o ge t the minutes o f the gran d jury that ha d voted th e origina l indictment. We resisted on the basic principle (whic h was of no immediate concern to our client) that proceedings before grand juries should be secret. Jon O . Newman, th e U.S . district judg e i n Ne w Haven , ordere d th e release of the minutes, but it wasn't quite that simple because the District Court in New York controlled them. We resisted in New York by starting a "separate" proceeding there in the hope that a n order i n that proceedin g would be final and hence appealable. Judge Wyatt decided agains t us on the groun d tha t th e dut y o f hi s cour t wa s purel y ministerial , an d w e appealed t o the Secon d Circui t Cour t o f Appeals. Our opponent s con tested the separateness o f the proceeding, and hence the appealability of the order, by a motion i n the Court of Appeals to dismiss the appeal. The court declined to consider the motion, saying it would decide it on the full record whe n th e appea l was before it . The receiver foun d som e way to renew hi s request , bu t wit h th e sam e outcome . As a result , whe n th e appeal finally came on, this motion was up for consideration for the third time. The Court o f Appeals decided that they did not hav e jurisdiction, but having spent so much energy on the matter, they indicated what they would have done had the merits of the case been before them; that was to keep grand jury minutes sealed . When we were back in New Haven o n reargument, Judge Newman decide d to follow the unofficial view s of the Court of Appeals. Many months later, at a small dinner in Washington, Court of Appeals Chief Judge Irving Kaufman aske d me whatever happened to the matter. I told him how, in the late afternoon whe n all but the receiver's counsel and we had lef t th e courtroom , I had brought th e appellate ruling to Judg e Newman's attentio n an d h e had sai d that, yes, it was only dictum, bu t considering its source, it was dictum h e was inclined to follow. Kaufma n was amused, smiled, and then said with a sigh, "I wish we could get David to do that," referring, I assumed, to David Edelstein, district judge, who

Antitrust and Bankruptcy Cases / 63 had the government antitrust case against IBM 1 that many people thought he was so mishandling that it would never be tried. In spite of the fact that most o f his rulings were at the behest o f the government , i t eventuall y came to the same conclusion and dismissed the case. The next episode in the New Haven case , after ne w counsel took over from Bork, was an unfortunate depositio n of a retired salesman for one of the smaller steel companies in Pittsburgh. A deposition usually takes place in a lawyer's office wit h onl y the witness an d the lawyers for th e partie s present. The time and place are not publicly announced. (Althoug h ther e is dispute ove r the righ t o f the press to be present, this questio n neve r arose in my decades of experience.) Any subject matte r arguabl y relevant can, in theory, be explored unde r th e federal cour t rules . The only thing the examining counsel may not do is to ask improperly phrased questions ("When di d you sto p beating your wife?") . The counse l defendin g th e witness serves one function, to object to improper questions. The counse l defendin g th e perso n depose d wa s a good tria l lawyer , but h e seeme d undul y fearfu l abou t th e examination . H e told m e hi s witness ha d no t attende d an y meetings with competitor s wher e price s were discusse d an d ha d no t ha d an y phone call s with competitor s i n which prices were discussed. I went out to Pittsburgh th e day the deposition was to be taken an d calle d the counsel from th e office o f the U.S. Steel antitrust an d litigation lawyer . I advised hi m t o g o ahead with th e deposition, that I would no t atten d t o interpose objection s o n behalf o f U.S. Steel. I said I was sure that i f the fact s wer e as the witness stated , and i f counsel fo r th e smal l company allowed onl y proper question s t o be asked and instructed hi s witness t o answe r onl y the question s asked , we would have no problem . Well, the questioning went pretty well for a time. The counsel for th e plaintiff, Ne w Haven Railroad , establishe d th e fac t tha t th e small com pany's transportation departmen t had , on occasion , called the U.S. Steel traffic departmen t an d obtaine d th e unpublished rat e and distance . No harm i n that. New Haven then asked , "Why did U.S. Steel give out tha t information?"—a questio n that could have been objected to as calling for 1. This was the matter about which IBM general counsel said, "I gave my lawyers an unlimited budget and they exceeded it."

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the operatio n o f somebod y else' s mind, o r coul d hav e been answered , "How do I know? You'll have to ask them." Instead, the witness volunteered, "Because they wanted us to have that information s o tha t price s coul d b e quote d tha t wer e identica l t o th e penny." The opportunity to object t o the form o f the question was gone forever. A proper objection to the form of the question or a good response by the witness might have kept this speculation out of the lawsuit entirely, but onc e th e word s wer e uttere d the y wer e arguabl y a n admissio n o f intention b y a coconspirator an d thu s a real problem. From suc h smal l points large consequences flow. The witness's counsel, when his turn cam e again, didn't dar e ask him anything to help out, such as, "Did you ever talk to anyon e at U.S. Steel about that?" because you don't ask questions to which you don't know the answers. The small company's counsel was so shaken that he allowed the deposition t o be closed. Afterward, h e asked his retired salesperso n th e basis for hi s answer an d go t the information tha t h e didn't hav e any — that wa s just hi s guess. It would hav e been les s than effectiv e fo r u s t o depose the witness weeks later and elicit that response about the guess. After consultin g with U.S. Steel, we were authorized t o settle the case for one million dollars. Back in 1948 when Lowell Wadmond talked to me about becomin g a trial lawyer in his department, he had said , "Lawyers are frequently scare d that case s can be lost for million s o f dollars. Have courage. Courts don' t lik e to redistribut e wealth . Big verdicts ge t over turned for one reason or another by appellate courts and you always have another chance to settle." We found ourselves , however, on the cusp of the new era, in which even billion-dollar verdict s coul d be sustained o n appeal , so the client an d I were pleased with th e result . That wa s the onl y money, other tha n th e fines, tha t U.S. Steel had to pay out for all the indictments and civil litigation in the wake of the 196 2 price increases. Later on, after havin g represented U.S . Steel Corporation i n a tax case involving company people at the highest levels, I was asked by Gus Heatwole, its general counsel, to become personally involved in a number o f other matter s o f som e antitrus t sensitivity . On e involve d a grand jur y investigation into the titanium industry. U.S. Steel and Nationa l Distiller s had a joint venture i n Niles, Ohio,

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Reactive Metals, Inc. (RMI). Titanium was "the metal of the future," and the venture, though o f minor economi c value to either parent, generated a lot o f interes t o f to p official s becaus e o f titanium' s us e i n space-ag e weaponry an d aeronautics . Besides, the officer s o f th e tw o companie s liked one another. Despite the involvement of these top folks, some of the salespeople manage d t o get together wit h thei r fellow s fro m othe r tita nium producers to fix prices. The great temptation o f the price-fixers was to say they were so directed by the top U.S. Steel and National Distiller s people, in turn tempting the prosecutors to grant the new accusers immunity and go after the higher-ups. Salespeople told us that at an RMI board meeting, officers o f both companies gave orders to get together with the competitors and fix prices. The story was so unlikely that i t had a ring of truth. (Wh o would mak e up a tale like that?) Moreover , several people were willing to swear to it. One witness had a story that his boss had canceled the orders before any action was taken on them. Since every target of a criminal investigation is presumed innocent until proven guilty , th e conventiona l wisdo m advise s neve r t o le t a witnes s whom you represent go before a grand jury without getting immunity for that witness, or a t the least getting a promise (a s specific a s possible) o f leniency for cooperatio n i n proving the case against higher-ups. For these reasons, the possibility of conflicts arising among various company people called to testify has been present since automatic immunity was abolished. From the suspicious view of the prosecutor, there is also the temptation for the counsel for the company to hold out inducements to the would-be talebearers to temper the wind for the shorn lamb. Government prosecu tors should not harbor suc h unlawyerly suspicions of their fellow profes sionals, but many come forward a s alleged champions of the witnesses to save them from the supposed conflict of interest of their counsel. Over the years we, and othe r firms, hav e built u p method s o f dealing with thes e problems that have worked well. As in any other professional matter, there are sometimes close calls. We could no t represen t th e corporation an d a n officia l wh o allege d that h e or she was told to violate the criminal law by the board of directors. Once the officia l sai d that , th e representatio n cam e t o a n en d bu t not , o f course, the duty to hold confidential what the former clien t had revealed.

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The counsel's duty now was to find out what, if any, validity the accusations had. This required goin g to the accused members of the board an d explaining to them not only our basic duty to represent the corporation , but als o th e abilit y t o represen t th e individua l a s well unti l a conflic t appeared. Each individual, while so represented, had the opportunity t o tell the truth, knowing tha t th e counse l would no t furthe r revea l it; of course, the individual had to realize, however, that if either now or later that person neede d separat e counsel and coul d no longer communicat e with the company counsel, certain inferences would be drawn by everyone. A theoretical difficulty woul d arise if the entire board of directors were involved i n criminal activity : who would giv e direction t o the lawyer? If the violation o f law were clear an d ongoing , the lawye r would hav e t o resign. One could not knowingly represent a n enterpris e pushing crack . But i f th e allege d activity , suc h a s allowin g a minimum o f hazardou s waste to escape, were arguably not criminal , the lawyer should be able to represent (a t least until close to trial) both the company and the accused officer o r officers , whos e interests migh t wel l be identical. In orde r fo r those accused of crime to have counsel of their choice, it has always been my view that intelligen t corporat e employee s ough t t o be able to selec t whomever they want. The individuals deserve clear explanations (some times by separate counsel) of the law and of their options, so that they can make informed decisions , but onc e they have full knowledg e it is, in my view, a constitutional deprivatio n o f their Sixth-Amendmen t righ t "t o have the Assistance of Counsel for [their ] defense " to tell them they cannot have the lawyer they choose. Anyway, I made the unusual decision, contrary to all the conventiona l wisdom, to put a senior officer alon e before a grand jury in Pittsburgh t o say, "It ain't so." He came through with flying colors, and no true bill was put forward agains t him. Questions abou t professiona l responsibilit y wer e endemic . When Bo b Bicks, now in private practice , and I were working together, we had t o make the most difficult decision s about representing, as we did jointly, the subsidiary owned by our two corporate clients, some but not others of the officers o f the subsidiary, the parent companies we each represented individually, and the officers an d directors of each parent. We had to reaffir m

Antitrust an d Bankruptcy Cases / 67 our conclusion s fro m tim e t o tim e regardin g who m w e coul d stil l prop erly represent . Sometime s thes e ver y decision s wer e mad e eve n mor e difficult becaus e th e Departmen t o f Justic e too k th e positio n tha t on e o r more o f those officer s was , if not a "target" of the investigation , "a perso n under som e suspicion. " One individua l gav e me personall y some sleeples s nights becaus e h e kep t rehashin g thing s i n hi s min d "a s he rod e aroun d his lawn on his garden tractor." After ever y weekend he remembered som e additional detai l favorable t o ou r side , until the totality of his recollectio n was s o goo d fo r u s a s arguabl y t o den y som e o f th e incriminatin g testi mony he had give n under oat h with immunity . We ha d t o devis e a way t o reques t immunit y unde r th e ne w narro w indemnity statut e withou t makin g a damagin g admission . Afte r gettin g the individual's decision , I wrote abou t a one-page memorandu m saying , It is possible that, if called, the witness unde r discussio n migh t disclos e the followin g story . We do not , of course , know i f this stor y is true no r indeed whether th e witness will say those things, but we are of the view that th e chance of his doing so is sufficient tha t the Department wil l be well advise d t o proceed . Thi s memorandu m ha s no t bee n rea d b y th e witness an d i s not an y admission o n hi s part, but constitute s ou r view s as counsel of certain possibilities. After havin g agonize d ove r som e reall y difficul t problem s an d havin g shared those that I could with Bo b Bicks, who was a sound, ethical lawyer , I confronte d a s we approache d tria l a n applicatio n t o disqualif y m e a s counsel fo r a retired secretar y whom n o on e coul d possibl y describ e a s a target, o r eve n a n objec t o f th e mos t remot e suspicion . Sh e was goin g t o be called by the prosecution t o testify tha t a competitor had , from tim e t o time, called her absen t boss an d aske d him t o cal l back a "Mr. Balksite" or some suc h nam e tha t th e governmen t claime d wa s a code to indicat e tha t the retur n cal l shoul d b e mad e fro m a phon e boot h o r othe r secur e phone. N o on e allege d tha t thi s white-haire d lad y i n he r seventie s kne w the meanin g o f the cod e or was part o f the conspiracy . The mos t th e gov ernment wante d wa s th e fac t o f th e call s an d tha t sh e regarde d the m a s sufficiently unusua l t o hav e remembered . N o on e else , in he r memory , had receive d such messages . I had, of course, advised her t o tell the truth exactl y as she remembere d

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and neithe r t o embellish i t at the suggestion o f the government no r t o soft-pedal anythin g out of mistaken loyalty. The company was content to have the absolute truth on the record. What the government really wanted to achieve by this maneuver one can only guess. Responsible scholars like Professor Monroe Freedman argue that defen dants in criminal cases have a right to take the stand and lie and that their own counsel is not anointed to tell them they can't. There may be, though I doubt it, situations where this makes sense. Certainly, in business litigation lying is not onl y morally wrong, but it is also a very bad tactic. That old cynic Benjamin Frankli n correctl y said, "Honesty is the best policy." Witnesses have to feel comfortable, and an y witness worth puttin g o n is grateful t o be told to tell it like it is. "Tell the truth an d remembe r wha t you say" is an old lawyer's joke my father use d to quote, emphasizing that if you tell the truth you don't hav e to make an effort t o remember. Fur thermore, in a business setting there is always a computer o r paper trail, and i f you vary from wha t you know to be true, you canno t withstan d impeachment and will be easily destroyed. As I do with any other witness, I taught her how to listen for trick questions, to wait for the counsel's objection, and to answer the precise question aske d and no t what sh e thought th e counsel was looking for i f the question itsel f did not cal l for it . When the motion t o disqualify m e was made, I told her that I had already done about everythin g I could do fo r her because counsel for a witness has no standing during the actual trial to d o anythin g fo r th e witness unless she requested a conference t o b e advised on whether she could assert a privilege against self-incrimination ; we had been ove r that ground , too. From what sh e remembered, in m y view, she had don e nothin g wrong, let alon e criminal ; and further , n o government lawyer , eve n i f sh e ha d th e remot e possibilit y o f bein g charged with wrongdoing, would place himself i n the position o f attacking her before a jury. Well, she still wanted m e to be her counsel—he r personal counsel. She had never been in court before, she had heard m y name man y times , she liked me , and sh e didn' t wan t th e governmen t telling her that she could not have me present when they interviewed her. So we resisted the government's motion , which cam e on before Judg e Daniel J. Snyder, Jr., of the U.S. Court for the Western District of Pennsylvania. Bob Bicks took some part i n the argument; a former hea d o f the

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antitrust divisio n wh o ha d uncovere d th e electrica l conspiracy , he se t forth wha t we deemed to be uncontrovertible, that she had a right to the counsel of her choice in the absence of some conflict tha t was too subtl e for he r to understan d an d intelligentl y waive. The government di d no t want me to have the right to be present durin g their trial preparation o f her as a witness. But she had the right, absent a directive from th e judge, to talk to me anyway, and I was pretty sure that if the prosecutor asked for a direction that she not do so, I could get a reciprocal direction that once she had begun to testify he could not confer with her either. Judge Snyder said, "But suppose someone asks her what she did on the night of December 3, and she had been in a hotel room with a boyfriend, would you be able to put her interest ahead of your client and advise her to decline to answer?" "She's i n th e courtroom , you r Honor . Why don' t w e cal l her t o th e stand and let her answer that question. It is her right we're dealing with." The Judge declined to conduct a hearing and wrote an opinion disqualifying m e as her personal counsel . We appealed to the Court o f Appeals for the Third Circuit, but before the question came before that august tribunal, the subsidiary had pleaded nolo , the guilty individuals ha d bee n turned ove r to the attorney general, our parent companie s had been dismissed, and the question was moot, as we informed th e Third Circui t i n withdrawing our appeal. My view of judicial opinions in the area of professional responsibility was not notably enhanced. Judge Snyder did ask me into his chambers as we were tidying up loose ends and told me that he had been on a cruise with a judge "of your New York Court of Appeals" who had been absolutely charming and to whom Judge Snyder wanted t o write to continue thei r friendship . Th e troubl e was h e coul d remembe r onl y tha t th e Ne w York judge ha d a n Italia n name. "Gabrielli?" I suggested. "Gabrielli," he said. "Please give him m y regards. It's nice to have you top lawyers from New York in this court." Stretching a point, I said, "It is nice to be here, your Honor." In the Bush administration, Attorney General Thornburg attempted to short-circuit thi s whole issue by taking the position tha t assistan t U.S. attorneys were not bound b y the Code of Professional Responsibilit y o r

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Rules issued by the several states and thus were free to talk to represented individuals. We who seven years ago Talked of honor and of truth Shriek with pleasure if we show The weasel's twist, the weasel's tooth. —W. B. Yeats The fact is, however, that conflicts issues are always serious, and the better lawyer you are, the sooner you feel the pinch. We once represented two producers i n a n industry , one o f which became th e distributo r fo r th e other. We got this cleared with the Department o f Justice, and both com panies requeste d tha t w e continue representin g the m generall y an d i n connection with the distribution arrangement . They waived any possible conflicts, and we agreed. Looking back, I am convinced that the company executives and in-house counsel were focusing primarily on business, not legal conflicts. Distributors and producers have different dutie s and rights under distribution contracts . When these came into conflict, we lost both clients for all purposes. I learned something from that experience. Indeed, our New York Code provides that in situations where conflict might arise, it mus t b e obviou s tha t th e lawye r ca n represen t th e interest s o f bot h clients and each must consent after ful l disclosure. The position o f the steel industry became one of constant deterioration . Labor had a firm grip on some costs. The Japanese, with newer equipment and lowe r labo r costs , were, despite th e lon g distance s an d weight s o f shipments, able to land steel in the United States at a lower price than the U.S. producers charged. In order to protect the U.S. industry, presidents of the United States entered into agreements with the Japanese steel companies by which those companies undertook to limit their imports into the United States. Consumers Union , a self-styled consumers ' protection group , filed a lawsuit i n the U.S . District Cour t fo r th e Distric t o f Columbi a agains t William Rodgers as secretary of state and, among others, U.S. Steel Corporation, challengin g thes e agreement s a s illega l becaus e the y wer e beyond the power of the president to make, especially since they allegedly

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flew in the face o f the antitrust laws , which som e view as our economi c charter, if not our economic constitution. For reasons I do not now recall, the government left the laboring oar to the steel industry, who in turn lef t i t to U.S. Steel Corporation. We were again retaine d by Gus Heatwole with th e request tha t we get good D.C. counsel. We chose Arnold and Porter and its partner, Abe Krash, a particularly distinguished constitutional scholar . We, of course, took the position that government actio n could scarcely violate the antitrus t laws , which sough t t o regulate private monopolie s and conspiracies and not to outlaw the post office. We also argued, in the words of Chief Justice Marshall when he was in Congress, for the broadest scope of presidential power: "The President is the sole organ of the nation in its external relations an d it s sole representative with foreig n nations " (Annals of the 6th Congress, March 7,1800, Col. 613). Abe insisted that Justic e Bushrod Washington, the president's nephe w who served on the Supreme Court fro m 179 8 to 1818 , had sai d in a case called the Schooner "Pretty Maid," "In internationa l intercours e an d for eign affairs, the President is the chief organ of the United States." We never used tha t quotation , contentin g ourselve s with th e repetitio n o f Mar shall's words in more recent Suprem e Cour t cases . Diligent researc h ha s failed t o unearth Justic e Washington's revenge on his christening or even the case of the Schooner "Pretty Maid," and I have come to suspec t tha t Abe's quotation was apocryphal. In any event, we stipulated to let the impoverished Consumer s Unio n proceed without extensive pretrial discovery—giving them voluntary disclosure of any facts o r documents . In exchange they would as k only fo r injunctive relie f and not demand any damages. Judge Gerry Gesell characterized that as "good lawyering, Mr. Fales." Despite our allowin g them t o proceed immediately to the merits of their case, we were ahead in the courts when the agreements ran out by their terms and the case became moot. An Italian witness, who refused t o speak any English, came over to testif y in a different antitrus t proceeding, to the fact that his company had at one time made a serious effort t o enter the U.S. market but ha d been totall y unsuccessful. H e spoke so pure a n Italia n tha t th e interpreter fro m th e Federal Trade Commission (FTC ) apologize d fo r having interrupted ou r

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translation, saying that the witness's testimony was really not translatabl e into any other language. No other tongue could render his thought as well as his own pure Italian: "He speaks togata." However, for the important part of his testimony he needed no translator. I asked him, "Did your compan y ever try to enter the United State s market?" "Ah, trista historia," he began. The hearing examiner was anxious for u s to challenge the jurisdiction of the commission to enter the international field because he was dying to write on that topic. Although the matter was not full y settled, I was certain h e would parad e al l the ol d chestnut s abou t th e ma n wh o shoot s another acros s the border, an d s o on, down throug h a raft o f antitrus t cases decided by the courts. The thing I didn't want him to do was to start writing against us on jurisdiction and then go on against us on the merits of the case. We did not challeng e the jurisdiction o f the FTC but simpl y stressed tha t o n these facts ther e was no cal l to exercis e it. The hearin g officer wa s forthright enoug h t o concur , and th e cas e ended i n victory, although just at that time the FTC issued new merger rules, which mad e this something of a Pyrrhic victory. The great step forward, however , was not the hotly contested ability of the U.S . courts and , mor e particularly , commission s t o meddl e i n th e affairs o f foreign companies , but the recognition by the antitrust authori ties of the effect o f foreign competitio n on U.S. markets. It seems incredible now , but fo r th e decade s o f th e sixtie s an d seventie s th e antitrus t authorities almos t refused t o acknowledge the existence of foreign com petition, even i n th e television receiver , camera, and automobil e busi nesses. We no w hop e fo r a sensibl e antitrus t polic y tha t look s upo n competition in a realistic way and yet interprets the legislation with some of its original populist underpinnings . My experience in these antitrust case s supports m y view that being a trial lawyer is a career i n itself. I was never a n antitrus t expert . But th e help of partners who were, and the associates who worked with us, made it possible to achieve excellent results for ou r clients because we were not afraid t o take a verdict. Even this did not alway s discourage the Depart ment of Justice. Our partner Bill Conwell had a case in which he successfully blocked an indictment. The government the n allege d the same criminal acts against

Antitrust an d Bankruptcy Cases / 73

the corporation in an information ( a different typ e of criminal accusation not requiring the vote of a grand jury). Bill got that set aside. The department the n brough t a n informatio n o n simila r fact s i n Florida . Bil l retained loca l counsel an d the y secured a verdict i n favor o f the defen dant. The government then filed a civil suit (whic h was not barred by res judicata because the standard of proof is lower in civil suits). "I thought, lawyer Conwell," said Colone l Hartfield , "tha t when yo u won three times you got to keep the cup." For years Jesse Waid had had the Georgia and Florida Railroad Reorganization under his wing. It was the only old equity receivership in the country. Al l othe r railroa d reorganization s wer e unde r a sectio n o f th e bankruptcy law passed durin g the Depression. The Georgia an d Florid a had been in receivership every year since 1916, except that it achieved solvency and was back in the control of its stockholders for parts of the years 1917 and 191 8 and parts of the years 192 8 and 1929 . The receiver of the Georgia and Florida was an able man named Jones, who was also the head of the Sea Island resort. Shortly after I became a partner, I went to work on the matter. Jesse was really not u p to traveling to Georgia, and eve n Herb July , who was advising him, had troubl e keepin g Jess e abreast o f developments an d gettin g adequat e instruction s fro m him . We represented the trustee for on e group o f bondholders, and Wilkie Farr, Herb's former firm, represente d another . The railroad performe d a n importan t public service and was not allowe d to fold. The common stoc k had lon g since become worthless, the bonds ha d sun k below the water, and the y paid the current supplier s late. Even federal Socia l Security taxes were in arrears. What brought th e situation t o life was the prosperity of the sixties. Jones thought he saw the best opportunity in decades to sell the railroad a s a going business. As such, it would be worth many , many times what it could bring as a narrow strip of real estate, some old equipment , and secondhand tracks and track spikes. Jones called the representatives o f the bondholders an d other creditor s to discuss the prospect. We all met at Sea Island. Herb July and the bank officer wh o acte d a s truste e fo r ou r bondholder s an d I fle w dow n t o Atlanta on a regular flight and then to Brunswick on a little puddle jumper one winter Sunday afternoon. Jones met us, escorted us to our rooms, and

74 / Antitrust an d Bankruptcy Cases

told us dinner would be served in about a n hour. I asked him where the bar was, and he delivered the shattering news that Georgia was totally dry on Sundays ; not eve n a private resort could serve guests. Herb winked at me. He had, bless his heart, a full bottle of gin in his carry-on bag to share with u s before an d afte r dinner . It' s a great thin g t o b e the directo r o f research at White & Case and to know the liquor laws of each state. The next morning we authorized Jones to negotiate with the Souther n Railroad as a prospective purchaser and to start negotiations in Washington with the regulators of railroads on the various competitive and labor fronts. We also started thinkin g abou t th e extent to which we could get the IRS to share with al l the other creditor s in taking less than on e hun dred cents on the dollar. The Southern, of course, did not have to buy, and there was no benefit t o the creditors to sell if all the money went to Uncle Sam. We had the argument of the bird in hand. These negotiations were, as it turned out, not easy. We had to report to the judge, of course, to keep the court advised of what was going on. Frank M. Scarlett, the U.S. District Cour t judge sitting in Brunswick, Georgia , was a southerner. He loved to tell stories and would go to lunch with any or all of us without regard to whether all sides attended. After experience with our circumspec t benc h i n New York, this came to me as a surprise, but Scarlett was the only district judge in Brunswick, and he would never have had any social life at all if he had worried about whether his companion s were appearing or about to appear before him. He told of playing baseball in hi s yout h i n Albany , Georgia , whic h h e pronounce d correctl y a s "Albany." A second baseman ha d grabbe d his belt to prevent him fro m stealing third. "That fellow never came to any good; he was mee-an." Scarlett used two syllables to name the Deity. He boasted tha t h e had thrown ou t a federal prosecutio n fo r narcotic s possession because it was his opinion that under the Constitution the states and not the federal government retained all police powers. Branch Ricke y used to bring his baseball team t o the area for sprin g training. One day, one of Rickey's youngest ballplayers managed to dam age some federal propert y while skylarking. He was arrested and charge d with a crime. Rickey, knowing the judge was a baseball nut, took the kid out to the judge's house for a chat one afternoon jus t to get acquainted . Unfortunately, the young player "looked at the portrait of General Robert

Antitrust an d Bankruptcy Cases / 75

E. Lee that hangs over my fireplace and asked, 'Who's the old geezer in the whiskers, some ancestor o f yours?' I want to tell you we gave that youn g fella st/b-stantial justice. Yes, sir, suB-stantial justice." Jones did the negotiations with the Southern exceedingly well. The only hitches were the union, to whom th e ICC listened with respect , and th e IRS, which wanted its money in full plus full interest. The IRS was willing to consider forgoing penalties only on the ground that if the receiver hadn't ha d th e money , th e impositio n o f penaltie s migh t b e unfair . Th e Southern wanted us to hire an Atlanta lawyer who let it be known that he was a close friend o f Robert Kennedy , the attorne y general, who, as the government's to p lawyer , ha d th e ultimat e sa y i n a matter befor e th e court. Th e res t o f u s wer e leer y o f retainin g a lawyer wit h fe w othe r prominent qualifications , an d non e o f us nor ou r trustee client s wanted to be involve d i n th e retaine r arrangement . Eventually , Jones took th e matter out of our hands and engaged the fellow, who successfully negoti ated a 50 percent payment with no penalties and, more unusual, no interest. We assumed he did all this on the up-and-up an d gratefully accepted . The Souther n ha d t o agre e t o tak e o n mor e unio n peopl e tha n the y needed and to keep more positions after th e current incumbent s retire d than they thought fair, but they had to live with the union in the future, so perhaps they were wise. In the end our bondholders got fifty cents on the dollar, which unde r al l the circumstance s wa s extraordinary. Jess e had refused t o let his old time be written of f by his partners, always claiming that someda y i t woul d b e paid ; th e Georgi a an d Florid a tim e o n ou r books, running back to the twenties, remained as a receivable. I went down to Brunswick one last time to testify to the value of the services of White & Case, stretching as they did from the mists of antiquity to the final successful conclusion , which, in candor, was largely Jones's doing. For thi s purpos e I brought wit h m e ou r diar y entrie s o r tim e records , going back all those years, and emphasized the necessity of doing all the time-consuming thing s we had ha d t o d o to preserve the bondholders ' position ove r the years despite the facts that we had not billed them con temporaneously and that at the time when they were done no money came in to our client. Judge Scarlett was interested in the time records of a large New York firm and aske d questions abou t the emphasis on time in ou r New York practice. I started to say, "As Abraham Lincoln said, 'the lawyer's

76 I Antitrust an d Bankruptcy Cases

only stock-in-trade i s his time,'" but rememberin g tha t I did no t wan t "substantial justice," I bit my tongue before the words got out. Flying into Atlanta in our four-seater monoplan e on the way home, we got in the way of a huge four-engine schedule d flight an d just spun off to the sid e of the runway in time to fee l th e shudde r a s they roared past . Judge Scarlett awarded us a fair fee, and the last equity receivership in the United States came to a dignified an d final end, as did most of my bankruptcy dabbling. Allan Gropper was persuaded to become an expert in the field and wa s fully prepare d whe n th e nex t wav e of corporat e failure s came on. He has built up a real department. Along the way I had accumulate d enoug h knowledg e o f what bank ruptcy was really like to plough thi s field, along with the international , antitrust, and others , so long as I had the help of clients and my corporate, tax, and estat e partners. My impossible ai m o f being the complea t lawyer was beginning to take shape.

5 T H E STEE L TA X CAS E

Down int o the Robena coa l mine in Greene County, Pennsylvania, ou r team descended . The mine, opened durin g th e World War II, was pale gray where we expected black; the air was pungent and clotted. A woofer blew lime dust into the air at regular intervals, providing the light walls their color . When i t stuck to the walls, the lime would sea l them fro m shedding coal dust and , to some extent, retard th e escape of dangerou s gases. We saw the roof bolts being installed, long rods with a flat plate at the bottom screwe d int o the roc k above the coa l seam to prevent roo f falls. Most of the coal seams in Robena were an ideal thickness of abou t eight feet. In the coal mines in Western Pennsylvania we were told by the miners, absolutely deadpan, of coal seams so narrow that a miner had to roll in, carrying his pick. He had to end up looking at the face of the coal. If he didn't make it in three tries, he had to go home without pay. From seams narrower tha n tha t i t was sometimes worthwhile t o extract coa l because the seam was part way up a hill and the coal could be bored ou t by a huge mechanical auger on a rail track circling the hill. We combed these mine s t o lear n steelmakin g fro m belo w groun d t o th e finished product and , in the process of preparing fo r trial , got caught u p i n th e romance of making steel. The toughest U.S. Steel case to come our way involved the Korean War excess profits tax . Our partner , A. Chauncey Newlin (Chan) , had bee n advising U.S. Steel Corporation fo r many , many years. He had don e so well by them o n som e tax matters that we had on e of the few retainer s 11

78 / Th e Stee l Tax Cas e

called "U.S.S . Tax," which brough t i n mone y whethe r o r no t w e di d specific work. Chan had followed th e excess profits ta x field so carefully tha t he had sought and been granted special status as a nonparty, in a suit by another taxpayer, to file a brief for U.S. Steel in the Court of Appeals for the Second Circuit. That court agreed with the other taxpayer and with Chan that the excess profits ta x did not apply if the profits i n the measuring years were abnormally low because of some identifiable caus e that had been removed by something other than the Korean War. The specific issue on appeal had been the degree to which "cause" had to be "proved." Chan's brief had kept the standard of proximate cause against an IRS argument for a higher "but for" standard, a crucial decision for U.S. Steel, as it turned out. Bob Tyson, the chief financial officer o f U.S. Steel, who reported only to the board o f directors, was in charge of all tax decisions. He had filed a return showin g no exces s profits ta x due for an y Korean War year. The identifiable cause s that kept the profits lo w in the measuring years 1947, 1948, and 194 9 were a steel strike in 1949 , coal strikes in 194 7 and 1948 , and most importantly and most difficult t o prove, a much lower production rate in the Northern Furnaces in 194 7 and 194 8 by reason of dirtierthan-normal iron ore and coal. Coal and iro n or e were dirtier i n 194 7 and 194 8 because on e always uses the best available materials first, but in the usual course one contin ues to build cleaning or "beneficiating" plants so as to get at least as good material into the blast furnace a s before. During World War II, U.S. Steel had used up a great deal of good clean coal and iron ore but had not been permitted t o follow th e usual course and t o devot e scarce resources t o build the huge cleaning plants that were needed. However, by the time of the Korean War, 195 1 to 1953 , the steel corporation ha d caugh t u p an d again had cleaned coal and treated iron ore. To make this showing convincingly, we had to demonstrate the production rates in about fifty blast furnaces i n many different plant s during the World War II years, the measuring years, and the Korean War years and to establish th e percentage of gangue in the or e and as h and sulfu r i n th e coal fed into each of those blast furnaces . Because we had the full backin g of the most powerful chie f financial officer i n th e nation , we unearthed th e ra w records. Some cam e fro m

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regular storag e in abandoned limeston e mine s and som e from unlikel y places like the attic of an office building in the Clairton Coke works. Find them we did in extreme detail compiled for every hopper car that traveled up the side of a blast furnace . A blast furnace, a huge cylinder lined with refractory brick , maintains temperatures i n the thousands o f degree s and remove s oxyge n trappe d with the iron in Fe2 O3. In those days "direct shipping ores" (the product that the shovel gouged from th e earth) containe d not only iron and oxygen bu t als o san d an d cla y (silic a an d alumina) , whic h ha d t o b e removed. In the blast furnace a blower forces ai r in under pressur e to make the coke burn hotter. The coke, made from coal , would ideally be pure carbon in a spongelike form throug h which the maximum amoun t o f air coul d flow. Idea l cok e i s stron g enoug h t o bur n t o nothin g withou t bein g crushed t o powder. But the coking coal contained unwante d materials , ash (for example, rock and pebbles that wouldn't burn) an d sulfur, which is poison to the steelmaking process. Limestone, the third major ite m charged into the blast furnace, melts in the heat and agglomerate s the sand, clay, and roc k into a slag that float s on top of the pool of molten iro n that drip s into the bottom o f the fur nace. When enoug h iro n an d slag accumulate to float th e slag above the hole where it is supposed to run out, the air is turned off (at least it was in those days ) an d th e sla g i s ru n of f int o pot s t o cool . Later , i t ca n b e crushed and used in cement. Then the iron ore is tapped and run off into ladles. Thes e ladles , a t abou t thre e thousan d degree s Fahrenheit , ar e transferred t o the open hearth steel plant. Somebody describe d th e blas t furnac e a s a place wher e a thousan d chemical reactions take place simultaneously, most o f them ou t o f con trol. And indeed, lots of things could go wrong. For instance, the air and flames tended, instead of fanning ou t equally through the burden, to find pipes in the material, which would then ge t most o f the heat. If the coke then crumbled t o dust, the dust could clog the pipes, and the whole fur nace could start to cool down to one great gooey mess. In order to guard against this , the U.S. Bureau o f Mines recommended makin g the limestone rocks of uniform shap e and size, an expensive process U.S. Steel had not adopted by the Korean War years.

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People criticized the American steel industry for years for not adopting the basic oxygen furnace. Instead, said the critics, the industry, led by U.S. Steel, had double d thei r old-fashione d ope n hearth capacity . The critic s failed t o mention tha t U.S . Steel did not build an y new open hearth fur naces; they doubled the capacity of the existing furnaces by installing oxygen lances that ble w oxygen into the bath o f molten steel , to much th e same effect a s the introduction o f oxygen into the basic oxygen furnace . These and a dozen othe r majo r disagreement s abou t ho w best to mak e steel complicated our task. Bob Tyson gave us Bracy Smith, comptroller of U.S. Steel, and an effec tive team. Bracy took Ray Hamilton, Tom Leary, and m e on a tour o f all the northern plants of U.S. Steel. The coal came out o f Robena o n a belt over six feet wide, traveling at twenty miles an hour an d dumpin g the high-ash, high-sulfur coa l into a washer. In this six-story plant, the big rocks were removed by hand an d the coal was crushed an d washed over slanted shaking tables with ridge s in them. The coal was lighter than the rock and the sulfur an d floated off the end. The exact angles, water speeds, and so forth t o handle all of this successfully a t the rat e o f thousands o f tons a n hou r wa s the resul t o f careful engineerin g and farsighted investment . We als o wen t u p t o Hibbing , Minnesota , t o se e th e canyon s wher e earthmovers du g the ore and dumpe d i t into huge trucks that unloade d into railroad cars. Trains of several hundred cars left each day. U.S. Steel, in its heyday, shipped about 40 million tons of steel a year; the industry, 10 0 million. To get 10 0 million tons of pure steel required twice that man y tons of iron ore , almost 8 0 million ton s of coal, and ove r 20 million tons of limestone—everything accomplished in heroic quantities. The town of Hibbing totally depended on ore mining. The state royalty taxes still provided excellen t schools. Some decades before, they had discovered a further bod y of ore under the town, so they picked up Hibbing and moved it a couple of miles to the south. North of Hibbing lay the new Mintac field, composed of magnetic ore, Fe3 O4. Every couple of hours someone would close a switch and a piece of ground th e size of a football fiel d woul d ris e into the air and be bulldozed onto conveyor belts, ground to the consistency of face powder, and run ove r magnetic drum s t o which th e iron particle s would stick . The

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particles were rolled into pellets, which were dried in a rotating kiln an d dumped into rail cars for shipment to Duluth. The pellets were 95 percent pure Fe 3 O4. This change of the whole process of steelmaking becam e effective lon g after th e Korean war, but it vividly illustrates the concept of a beneficiating plant . Steven Jenks , a recentl y retire d executiv e vic e presiden t an d boar d member of U.S. Steel, joined us. Redheaded, pipe-smoking, intense, Steve Jenks was, despite his small stature, a giant amon g men. During World War II he had been the manager o f Gary Works, then the world's largest steel plant. Later, he had been the head of U.S. Steel's Research Center. With Steve's guidance we visited the coke plants, the blast furnaces, the open heart h furnaces , th e soakin g pit s wher e th e stee l ingot s wer e reheated, and th e slab mills, rolling mills, and s o on. When a n ingo t i s rolled ou t int o sheets, the rolls have to go increasingly faster a s the steel gets thinner. Finally, the steel ribbon, twelve feet wide, moves through the plant at sixty miles an hour. On rare occasions an accident occurs and the steel does not roll up onto its final coil but flies loose about the plant. It is best not to be in the room when this happens. After w e had gained an overview of steelmaking, Steve Jenks and I sat down to figure out how to demonstrate tha t the reason th e Korean War years were so much more profitable t o U.S. Steel than the prior years was that the burdens for th e blast furnaces i n the measuring years had bee n comparatively full of gangue, ash, and sulfur. What was easy to state as an abstract principle needed to stand up scientifically o r statistically to convince a tough-minded judg e that a n internationa l wa r that ha d cause d Congress to pass, and almost everybody to pay, an excess profits ta x was not the cause of our increased profits bu t rathe r tha t thos e profits cam e from th e needed introductio n o f coal-washing plants and ore-sinterin g machines. I rea d an d rerea d th e sixteen-hundred-page , finely printe d bibl e o f steelmaking, U.S. Steel's The Making, Shaping and Treating of Steely so that I could a t least talk to Steve . People who ar e used t o being in charg e of plants wher e sixty-to n ladle s o f ho t meta l a t thre e thousan d degree s Fahrenheit move overhead to a variety of destinations by voice command do not have much toleranc e for th e sloppy use of the language of thei r trade. You do not burn the oxygen out of the iron, as I would tend to say;

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rather, "the oxides of iron ar e reduced t o metallic iron by the agent car bon." Furthermore, "The required carbo n fo r the smelting of iron is prepared b y the destructiv e distillatio n o f selecte d coal s a t 1,65 0 degree s Fahrenheit t o 2,00 0 degree s Fahrenheit . Suc h distillatio n o f coa l (car bonization) i n th e absenc e o f ai r result s i n th e evolutio n o f gase s an d vapors, leaving a coke residue in the oven." Under proper circumstances, a "ton of coking coal yields about the following proportions o f the several coal chemicals as well as the coke. " (I leave out plenty of qualifiers.) Tha t is to say, One net ton of coal in typical American practice will produce: Furnace Coke 1,200-1,40 Coke Breeze 100-20 Coke Oven Gas 9,500-11,50 Tar 8-1 Aluminum Sulphate 20-2 Ammoniacal Liquor 15-3 Light Oil 2.5-

0 lbs. 0 lbs. 0 lbs. 2 gals. 8 lbs. 5 gals. 4 gals.

Yields vary widely, depending o n th e type of coal carbonized, car bonization temperature and method of coal chemical recovery. Greek wa s no t a s complicate d a s this . Eac h o f thes e product s ha d value. Th e expecte d variation s exceede d anythin g w e coul d handl e according to that table. The amount o f coke to be derived fro m a ton o f coal would vary more than 1 6 percent, and th e annua l increase s in th e ash and sulfur i n the coke varied from a low of 10* 4 percent to a high of nearly 13 percent. The ore delivered to the furnaces ha d a low of 12V 2 percent extraneou s matter an d a high o f 1 5 percent, and with thi s kind o f language abou t variations staring us in the face from our own bible (would that my opponent had written a book!), how could we produce a showing that woul d withstand cross-examination ? Isn't i t a fact, Mr . Jenks, that you r ow n compan y manua l show s th e whole process is full of variables? Why, even the amount of coke you can expect to get from a ton of coal can vary by more than 16 percent, can it not? The amount of coke breeze or recoverable coke dust can vary 100

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percent? And you want to tell us that you can state under oath, with reasonable scientific and statistical certainty, that a variation of under three percentage points in what you call "gangue, plus organic and volatile matter in ore and sinter," caused an identifiable change in the amount of iron produced by some measure that accounts for millions and millions of dollars of improved profits? The more I studied, the more complicate d i t became. One thousan d chemical reaction s takin g plac e simultaneousl y seeme d t o m e t o b e beyond th e capacit y o f th e huma n min d t o contemplate . M y min d reverted to my school days, when the only thing that kept me from bein g totally happy was the study of Latin and Greek. My close friend an d older brother ha d persuade d m e t o ente r th e classic s program , a t whic h h e excelled. For me, the crossword-puzzle wa y in which we had to study — without eve r memorizin g an y poetry o r otherwis e engagin g th e aura l senses—tortured me . Greek was, with its strange alphabet, many declensions and accents, the worst. The only thing I took away from th e exercise was the sense that nothing else could be so hard. If I could, as I did finally, get a passing mark in Greek , I could tackle anything else . So I began t o think about how to measure and then to articulate the facts so that a normal human being , such a s a judge with n o scientifi c backgroun d an d a limited attentio n span , would gras p the idea with gle e and say , "Yes, this one taxpayer is special and doesn't have to pay like everybody else." Our client , U.S. Steel, had two things going for i t then, now, and int o the foreseeable future : integrit y an d simplicity . Once, when I suggested they take into their law department a White & Case associate, Dom King, their general counsel, said to me, "We may not be able to pay enough, but he's our kind of guy, totally straightforward, a Middle Westerner with n o kind of intellectual side." It's not tha t U.S . Steel people aren' t smart ; it' s that the y don' t affec t Harvard accents , and they listen and learn. They are the antithesis of my mother's old saying: "You can always tell a Harvard man, but you can't tell him much." Although they had reason to know they were right, they understood that that was not enough . They gratefully joine d i n sweating out somethin g that would win. Everybody pitched in , and we sweated. We had the 194 9 steel strike and maybe one good year of the coal strikes, but you don't win

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by taking chances on your less-than-best shots . Somehow we had to pu t something together that would show what we knew in fact to be true, and then we had to establish it on the record by admissible evidence. In the meantime we had to make the 194 9 steel strike stick. Academia, as s o frequentl y happens , disagree d wit h bi g busines s fo r exactl y th e wrong reasons . They claime d tha t th e stee l industr y ha d strike s ever y three years because it anticipated slowdown s in demand an d though t i t cheaper to shut the mills down completel y for a time than t o operate a t less than 8 5 percent capacity ; whereas, in fact , th e industr y struggle d valiantly, if unsuccessfully an d insufficiently , t o keep the United State s competitive in world markets. We knew the IRS position would be that the 194 9 steel strike did nothing to U.S. Steel because it would no t hav e had enoug h order s to kee p going at maximum efficienc y i f there had not been a strike. The difficul ties with trying to prove how it would have been if it had been differen t were that i t wasn't differen t an d tha t th e taxpayer alway s has to d o th e proving. The United State s hungered fo r stee l in 1949 , as did the rest of the world. The United States , therefore, consume d onl y the amount o f steel available. They did not consume the steel that could have been made had there been no strike. How could we prove that had the steel been produced it would, in fact, have been consumed? The testimony of customers seemed essential. Because of my work with sheets during the antitrust cases, I knew that Hoogstra of General Motors would have his finger on the pulse of the market. Efforts throug h the tax department at General Motors from th e tax people at U.S. Steel produced this answer to our reques t for Hoogstr a a s a potential witness: that Gen eral Motors was in the business of making cars, not lawsuits. They almost said that Genera l Motors, like all other big American companies , always had million s o f dollars in contention wit h the IRS on issue s subject t o legitimate bargaining and give and take, and that producing a witness to help anothe r taxpaye r would cos t them perhap s on e of those bargains. Ross Malone, who had, like Orison, been president o f the American Ba r Association, was general counsel of General Motors. I told Orison of our difficulties an d of the position the General Motors tax people had hinted at. We discussed going to see Ross Malone and putting the issue squarely to him, that i t made no sens e to let the IRS get away with intimidatin g

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great American companies from producin g witnesses to tell the truth. Of course, put tha t boldly, the IRS would den y that they ever had an y such position. It would not only be immoral for them to do so, but the Code of Professional Responsibilit y ha d specifi c languag e abou t th e evil s o f arrangements to keep witnesses from testifying . Th e General Motors tax lawyers, we believed, could say more than they had; that is, they perceived it would cool their relations with the IRS to volunteer witnesses in othe r companies' cases. So Orison and I discussed just how we should approach Ross Malone . Oriso n talke d t o hi m o n th e phon e an d aske d fo r a n appointment fo r us to call upon hi m to discuss the possibility of obtain ing testimony from a General Motors witness in a tax case. Ross said he would be glad to see us and gave us a date some days away when he could fit us in for half an hour in his busy schedule. On the appointed day, we went to Ross's impressive office high up in the new General Motors building on Fift h Avenue at Fifty-Ninth Street . We admired the view of Central Park spread green and shining, stretching five miles to the north, and made suitable comments. Then Orison came right to the point: we had com e to see Ross in his position a s general counse l because w e and ou r clien t ha d no t bee n abl e t o persuad e th e Genera l Motors tax department to let us talk to Hoogstra as a potential witness. Orison quoted them on making cars, not lawsuits, and said he believed that U.S. business companies ought to be careful but generous in assisting one another in important disputes with the government. Ross said he had reviewed the tax department polic y and was always inclined to back his own people, but he understood Orison' s point of view and would make a decision afte r hearin g wha t i t wa s w e wante d t o prov e an d wh y w e thought that calling a General Motor's witness was essential. Orison nod ded to me and I gave Ross the issues involved in the 1949 strike. I told him I believed the internal estimates of demand that we had would be deemed self-serving by the court, and therefore w e needed testimony from a customer. I knew Hoogstra had a system, different fro m hi s later competitive arrangements, for getting the best out of the steel companies' allocation of steel to customers as a percentage of their previous purchasers. Further, I was sure Hoogstra coul d tel l us that th e lack of steel sheets and certai n rods had limited the production o f cars in the years 194 9 and 195 0 and that steel was, in fact, in short supply during the relevant period.

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Ross listened wit h interes t an d aske d how much wa s involved i n th e case, a complicated point I did not want to minimize nor to seem to exaggerate. I told him we had paid int o cour t th e deficiency claime d fo r th e year 1950 and had sued in the Southern District to get it back because that was the only way we could get before th e Second Circuit; the amount fo r 1950, involving only half a year, was comparatively small, but we had a n agreement wit h th e IRS to let the decisio n o n th e year 195 0 govern th e years 1951 , 1952 , an d 1953 , an d th e combine d tota l o f deficiencie s exceeded on e hundre d millio n dollar s wit h a n approximatel y equa l amount of interest. Ross got up and paced about the room. He sat down at his large, carved desk, turned to Orison, and said, All right , Orison , I wil l overrul e m y ta x people . Thi s testimon y appears t o m e to be vital to your case , and th e issu e is importan t enough t o com e to thi s offic e fo r decision . I agree that whe n i t is really necessary , companie s shoul d voluntaril y produc e fac t wit nesses in dispute s with th e government, an d I trust tha t U.S . Steel will do so if requested by General Motors. So we got Hoogstr a a s a potential witness . I went ou t t o Detroi t t o interview him i n a huge office building . Hoogstra's building had a high ceiling and ope n spac e as big as an assembly plant. This open spac e was divided into cubicles by glass partitions about six feet high, one of them Hoogstra's office. I t had roo m fo r hi s desk, his chair, one filing cabinet, and one visitor. The man who brought the steel industry to heel and saved millions of dollars every year for Genera l Motors was not given an offic e from whic h to deriv e his clout, such a s Thurman Arnol d o f the Justic e Department ha d been given . Only Jackie Gleason, playing Mussolini i n The Great Dictator had a larger offic e tha n Arnold's, but I'v e see n sho e clerks with bigger offices tha n Hoogstra's. Anyway, Hoogstra was ready to treat m e civilly and t o giv e me the necessary time. I told hi m wha t we needed and asked him to go back to his records for the years 1947 to 1952 before giving me any concrete answers. In the end, he turned out to be an exceedingly helpful witness. Steve Jenks and I continued t o worry about th e problem o f the lowquality furnace burdens . We decided, after lon g discussions, to try to find

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a straight statistical correlation between the extra junk in the burdens and the reduced outpu t o f the blast furnaces. Stev e agreed to figure out just how much the extra junk impeded the process. He studied the annualized figures for (1) capacity actually operated, (2) change in net burden materials , (3) change in the fuel value of the coke, and (4 ) change in the rate at which coke could be burned. The first variable, of course, merely put all the years on an equal basis. The values given the latter three were partly brilliant guesse s based upon years of experience and partly shrewd extrapolation s fro m th e actual figures. The first results came in spotty. Application o f Steve's formula t o the annualize d figures gave encouraging but uneve n results . From the formula, th e prediction of what would happen in 1947 , for example, produced more than we needed; the figures for 194 8 produced less than we needed. The other years fared n o better. Steve thought his formula wa s right, but he did not expect it to produce exact results for eac h year or each plant. One Satur day as I was struggling in my office wit h th e problem, I got an idea an d ran up to the manager's offic e o n the twenty-sixth floor , where we had a calculator. When I grouped al l the stable war years together (1941-1944 ) and compared them with the two years 194 7 and 194 8 together and then with the three years 1951 , 1952, and 1953 , the formula coincide d exactl y with what, in fact, did happen. I called Steve and asked him t o try it. He did and called me back, ecstatic. We felt confiden t hi s formula wa s right. We didn't entirel y understand wh y it worked s o well in gross but no t i n smaller pieces , but Stev e attribute d thi s t o th e unpredictabilit y o f th e process in the blast furnaces. Anyhow, we had somethin g we could rel y on. U.S. Steel had assigned some statisticians working by hand with calculators to annualize the figures. They had t o take the detailed record s of each furnace availabl e on a monthly basis, analyze these by the burden , which was carefully recorde d fo r each , by the fuel valu e of the coke, and by the amounts of time that it took to burn so many tons of coke. We finally got a computer program to do the annualizing of the figures and to apply the formula. The results became increasingly satisfactory as we got all the data into the computer system . It turned ou t that the rea son the formula worke d only in gross was that, in gross, statistical error s tend t o cance l eac h othe r out . Towar d th e en d w e foun d th e formul a would give accurate prediction of variations even for particular plants for

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a single year, and finally, as we got all the information int o the compute r accurately, we found i t worked for a single furnace fo r a single year. The blast furnace wa s a more accurate metallurgical device or retort than any of us , including Steve , had dare d t o predict . Stev e put together , i n hi s own meticulou s hand printing , with hi s own charts , a booklet o f sixtythree page s o f chart s an d table s tha t mad e hi s demonstratio n crysta l clear. Steve had been a heavy smoker u p through hi s fifties, besides havin g spent most o f his life in the fume-laden atmospher e o f steel plants. His doctors advised him that certai n earl y warning signs of respiratory trou ble and cancer were present an d that he could not plan o n living out his normal lif e expectancy . For this reason, Bracy Smith suggeste d tha t we might want to experiment with putting Steve' s deposition o n videotape. The Supreme Court committee had proposed a Federal Rule of Civil Procedure, not yet in force, that would entitle a party to take a deposition by videotape. I served a notice that we would d o just that. The governmen t objected, an d we had a motion befor e Judg e Richard H . Levet, who by now had been assigne d ou r case , as indeed he was assigned mos t o f th e serious civi l U.S . tax case s i n th e Souther n District . W e argue d tha t although th e new rule had not yet been adopted , the court had inheren t power to permit videotaping of a deposition; we could leave in abeyanc e the question o f whether or not it could be shown to the jury. Judge Levet ruled for the government. For our ow n edification, we taped a direct examination o f Steve going through an d explaining his booklet. This turned ou t pretty well, and we were invite d t o sho w i t t o th e director s o f U.S . Steel in th e handsom e board roo m a t the top o f 7 1 Broadway. I looked prett y awkward with a sheaf of notes to remind me what to ask Steve next and exactly what language to use in the questions, but Steve came across great. Chan, although a brilliant ta x lawyer, had neve r been intereste d i n detailed facts . He fell asleep after th e first ten minutes of the forty-minute showin g and snore d just enough to be noticeable. We gave notice that we would take Steve's deposition without videotape and carrie d i t ou t wit h th e governmen t lawyers , Larry Vogel and Ala n Morrison, present to cross-examine. At the deposition, we introduced a diagram of a steel plant, a cross-section of a blast furnace, two bundles of

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underlying documents , and the n Steve' s booklet, which became know n ever after a s "Jenks Number 5." To prepare Stev e for th e inevitable cross-examination, I had don e my usual preparation, explaining the nature o f the procedure, the rules that would suppor t objection s I might mak e to "Have-you-stopped-beating your-wife?" type questions, and I had put to Steve all the tough question s that I could think of that Vogel might ask him. Cross-examination is like a semantic parlor game . The clearheaded an d articulat e d o well at it, and Steve did a super job. I also had len t him a copy of Wellman's book o n cross-examination an d suggeste d h e rea d i t becaus e i t i s ful l o f goo d examples of cross-examination an d good anecdotes. Steve read it because I asked him to, but he said he did not enjoy the experience. Trial lawyers joke about havin g a bathtub mind , capable of filling up with facts that on e retains through tria l and then lets down the drain. A little something remains, giving one a smattering of ignorance in a variety of fields. The lawyer is always an apprentice. As the old saw goes: Judge: I will assign Mr. Snodgrass to represent you. Prisoner: Ho w long has he been a lawyer? Mr. Snodgrass: I have been practicing for ten years, your Honor. Prisoner: Can' t I have a real performer, not just somebody who's been practicing? Lawyers read a n enormou s amount : newly delivered opinions , books about law and lawyers, "how to" books, legal magazines, and newspapers. As with the facts of old cases, not all of this sticks in the mind; but if you are lucky, a bell goes off: "Better loo k a t it from thi s angle; I saw something i n an advanc e sheet, " one say s to oneself. Much o f my youth wa s spent chasin g dow n bit s o f suppose d la w tha t someon e though t h e remembered, and I have wasted hours of young lawyers' time looking for things I thought I remembered. The good ones come up with somethin g else, at least. At the first and second sessions of the deposition, Larry Vogel attempted cross-examination o f Steve with absolutel y no effec t excep t to underlin e Steve's accuracy and integrity. He gave Steve the opportunity to point out

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that i n al l of Jenks Number 5 there was not on e "bobtail chart" ; ever y chart started at zero and thus fairly compared the years. In discussing the procedure with Steve, I told him that the rule was one witness, one lawyer. Double teaming, by having questions asked by more than on e lawyer, was not permissible . Steve said he was glad of that; he had see n enoug h movie s t o understan d th e unfairnes s o f bein g ques tioned by good guy and bad guy cop. At the next session of the deposition, Vogel announced tha t Morriso n would conduct the cross-examination that day. I said, "No dice." Vogel literally pleaded, saying Morrison was prepared and he, Vogel, not expecting any opposition to his reasonable request to let his junior get some experience, was not prepared. I could tell that Stev e did not want to give in, so again I said, "No, we can go up to court to get a ruling if you like, but you know what that will be, and I will not voluntarily permit s o gross a violation o f due process. This session was scheduled a t your convenience ; we're here and read y to proceed. If you don't want to proceed we will take the position tha t th e deposition is closed." Vogel felt he had to go ahead, so he tried a new tack. Steve had testifie d under my questioning that he was generally familiar with each of the five northern stee l plants of U.S. Steel. Vogel asked him to describe the Gar y plant. That was, of course, easy for Steve , but Vogel got him to describe it in detail as to layout, the number o f coke ovens, the number an d sizes of the blast furnaces, the number and capacities of the open hearths, the ore facilities, the sintering facilities, and o n and on . Having been manager of that plant gave Steve considerable detail direct from memory . Vogel then aske d hi m on e b y one t o describ e th e othe r fou r plants . Steve plunged bravel y in and , to m y astonishment, neve r sai d "I don' t know" o r " I don' t recall " as th e answe r t o an y question , although , o f course, I had told him that if he was ever in doubt, he should say "I don't remember righ t now" because that answer could not be faulted. For fou r hours Steve continued to answer every question, patiently and in detail. I could se e that h e was taxing himself, but th e questions were all proper, and i t would hav e been quit e imprope r fo r m e to interfere . After fou r hours of this line, Vogel said he had no further question s for this session. As soon as we adjourned I said to Steve, "Wow, that was quite a perfor-

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mance. You know you could easily have said 'I don't know' from tim e to time instead of taxing your brain so hard." "Oh, I know," Steve said, "but I had testified tha t I was familiar wit h each of the plants, and I didn't want to let you down. The only one I had any trouble with was Clairton. I'd never been into Clairton, but I had driven by a number of times and I had seen the blast furnaces from the road. When I closed my eyes I could recall the scene, and I told him the number and size from tha t memory." When we checked the transcript agains t the facts for each location, it turned out that Steve had not made a single mistake in four hour s of testifying t o details from hi s unaided memory . God doesn't send one many witnesses like that in a lifetime. The IRS had probably the best computer system outside of NASA in the country, and they had access to all the brains in the government. I assume that they subjected Jenk s Number 5 to every test for accurac y available. They never came back with any suggestion o f an error. It really did show what it purported t o show, that the dirtier furnac e burden s in 194 7 and 1948 caused the fall-of f i n production i n those years, and henc e it was unfair to use them as measuring years. Not being able to attack our proo f o n a factual basis , the governmen t made a motion t o simplif y th e trial by disallowing evidenc e abou t ou r theory of bad furnace burdens on the ground that the statute looked only to "events," such as strikes, tornadoes, fires,and earthquakes, not to generalized conditions suc h a s our imbalanc e between or e and coa l reserve s and beneficiating plants. After al l those years of preparation, it seemed a limited an d unsoun d view of the statute. Facts were facts, and we ought to have our day in court to show that ou r fact s di d fit under th e statute. That i s the way federa l cases are tried—on the facts, not on someone's making a label and saying their label fits so you can't even try your case. The tension between deciding only on a factual recor d an d dismissing cases on pleadings has troubled the bench, as I learned in law school, since the time when a medieval barrister was paraded aroun d Westminster Hal l with his overlong pleading hun g aroun d hi s neck . Durin g muc h o f th e Warre n cour t er a a n antitrust cas e could not be dismissed before trial . Today, it is difficult t o prepare a pleading about "soft information" in the securities field that will get past the Second Circuit Court of Appeals.

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We filed an excellen t memorandu m tha t Cha n an d th e whol e tea m worked on. At oral argument, it seemed to me we had them. Not only was our point sound , but Larr y Vogel was, in my view, childish. He said U.S. Steel reminded him of a squirrel who had found a nut and was looking for some place to hide it. He skitters all over the yard, finallyselects a hole in a tree and drops his nut in. U.S. Steel had, for argument's sake, a slowdown in production and was desperately trying to find some way to take advantage of it. U.S. Steel looked at the exception to the excess profits tax case and said, "Ah, there's a good place to put our nut," but i t was mistaken. Its circumstances really have nothing to do with exempting them from th e excess profits tax statute. Judge Levet decided i n favor o f the government. That pu t u s in a real squeeze; we were two weeks from trial. We thought we had a good case on the 194 9 strike , but on e yea r wa s no t enough ; i t gav e u s onl y a smal l exemption. We thought on e of the coal strike years was pretty good, but the other year seemed a little shaky. We got to work on the second coa l strike year, one of small sporadic coal stoppages. Chuck Corry came u p with a useful analysi s of the coal stocks at certain plants , the only thing that made this additional year at least arguable. Chuck, the youngest membe r o f the U.S. Steel team, a relatively new lawyer in the corporation's tax department* wanted to shift ove r to man agement. I couldn't understan d suc h a n attitude . It seemed to m e tha t management dealt with dreary things like appropriation requests, internal documents asking for the expenditure of money on a new plant or equipment. Suc h a request usuall y showe d tha t i f th e ne w investmen t wer e made, it would pa y for itsel f i n five years and would continu e t o mak e money for years to come. I thought being a lawyer the most rewarding and challenging thing one could do. Steve Jenks talked up Chuck's request in the right quarters, and I told Bracy and others how helpful Chuck had been and how bright a guy I thought h e was. Chuck di d manage to get transferred fro m bein g a tax lawyer to som e managemen t rol e in th e fiscal side of the corporation . Apparently, it was the right thing for him . In 198 8 he was elected chair man and chief executive officer .

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When the trial finally started before Judge Levet, Roger Blough took the stand a s our first witness. We established a t the outset that his arrangements with White & Case in a n "of counsel" position di d no t mak e his compensation i n any way dependent o n the outcome or the length of the case. Roger had alway s been intimately involved in labor matters a t U.S. Steel. We called him largely to get into the record certain noncontroversia l matters such as the dates of the start and finish of the steel strike of 1949. Roger stated his current position a s general solicitor of the corporation. I asked him when the steel strike began. Judge Levet leveled, "He's a lawyer, not a steel operator; he can't testify to that." I asked Roger how he knew that a strike had started, and he responded that he could look out his window and see that there was nothing coming out o f the smokestacks. The government move d to strike the testimony , and the judge granted the motion. Obviously, we were in for a hard time, but Levet, while playing extra tough, was at least playing fair. What a trial judge can do to really kill you is to let you put in evidence that you think is totally acceptable but which he does not find convincin g an d no t sa y anything about it until he makes his findings. We got some other matter s established throug h Roger , including th e issues in the strike, and finallywe were able to establish his overall duties in negotiating with the union. We asked the government counsel to stipulate the strike dates, and they agreed. There really wasn't any dispute about them. Hoogstra mad e a n interesting witness. Judge Levet appeared kee n t o stop hi m fro m testifyin g a s to industr y condition s unles s h e wa s first qualified a s an expert. I asked him what his duties were in the summer of 1949. He replied tha t h e was assigned t o ac t a s an expediter . Levet was looking down, making notes about what appeare d t o be totally preliminary qualifying testimony . Q. What did you do as an expediter? A. I went from stee l company to steel company arguing for more steel for General Motors. Q. What was General Motors's interest in getting more steel? A. W e weren't getting enough steel to meet our needs. By now Leve t moved t o th e edg e of hi s chair . The witness bega n t o establish th e shortnes s o f th e suppl y o f stee l withou t doin g anythin g

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except to describe his own activities in his job. We continued i n this vein for some time without Levet or the government counsel (Larry Vogel had gone on to better things, and Alan Morrison was trying the government's case virtuall y unaided ) finding an y principle d wa y t o interrup t Mr . Hoogstra. We pretty well nailed down the fact that General Motors at least didn't have any stockpile of steel to take it through the strike. The types of steel (mostly sheets) that they bought were in such short suppl y that th e strike did, in fact, reduce the amount o f steel that U.S . Steel could mak e and shi p i n al l of 1949 , and i t di d depres s the numbe r o f automobile s General Motors produced. Hoogstra made a great witness. A more difficult witnes s to prepare, but ultimately a nearly perfect witness, was David Austin, who u p unti l abou t 195 6 was the chie f o f th e commercial departmen t responsibl e fo r sale s for al l of U.S. Steel. David had been retire d fo r mor e than te n years when the case came on, so he could hardly testify fro m unaide d recollection, but he was a proud man , both a n advantag e an d a disadvantage. In orde r t o satisf y hi s pride, he willingly worked like the dickens with the old records to bring back into his mind th e crucia l years. We spent day s poring ove r the record s an d reconstructing the commercial climate of the late 1940s . He got to know his data backward and forward. He understood the soft spots in our story and coul d avoid overemphasizing the m i n his answers to my questions, and he learned to withstand cross-examinatio n well . His pride, however, proved to be a stumbling block. Humility, the most important attribut e of any witness, underlies the ability to listen to the question quietl y and consider i t before answering . It stands a s a bulwark agains t being flat tered or insulted by the cross-examiner into an improvident answer. Orison onc e examine d Wal t Disne y a s a "hostile" witness. H e bega n b y asking, "Are you the Walt Disney who has given so much pleasur e to so many children over the years?" David had to be taught not to put himself at the center of the stage. I tol d hi m abou t ou r histor y teache r a t St . Paul' s Schoo l who , i n explaining a World War I battle, took a piece of chalk to the blackboar d and said , "Here were the French [scratchin g a big X]; here were the Germans [anothe r big X] and here was I [a third]." David told me that his wife said of his successor as executive vice president (commercial) that he wasn't worthy to tie David's shoes. "Oh," I said,

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"who trained hi m an d selecte d him?" Eventually, David learned t o con centrate o n th e fact s w e wanted t o emphasiz e an d no t o n hi s persona l skill. The team really needed and rejoiced i n Ray Hamilton, Tom Leary, and Don MacNaughton. U.S. Steel had a system of keeping its financial records on a "standard" basis. "Standard" might be seen by a layman to be a budget-type figure. It might also be seen as an incentive system. Each functio n of every plant had a standard figure. The standard set the amounts for the plant to produce: so much coke, so much pig iron, and so forth, at a standard rat e and a standard qualit y for a standard cost . At the end of every month, the accounting department would review the financial and physical deviations from standard and write up a report to management giving the reasons for the shortfall or the better-than-expected result . We ha d fo r th e Carnegi e Illinoi s Stee l Compan y (basicall y al l th e Chicago plants) monthly letters explaining the shortfalls in production of those plants and the cost overruns in terms of the disruptions of the coal supply by the strike, the necessity for extr a handling of the coal, and th e lower-quality coa l available fro m th e very bottom o f the coa l piles. Of course you not only have to have your facts so right that they are unassailable, but you als o have to have admissible evidenc e by which, piece by piece, to establish them. These monthly letters forme d par t o f the accountin g syste m o f U.S. Steel. They were prepared contemporaneously , in the ordinary course of business, and i t was part o f the business o f U.S. Steel to make them. At that time no one imagined that there would be a Korean War, let alone a Korean War Excess Profits Tax . All the conditions fo r gettin g them int o evidence, under the shop book rule of evidence that permits entering regularly maintained busines s records into evidenc e over an objection tha t they are hearsay, were fully satisfied . With live witnesses we made a clear record on eac h of those standards. Judge Levet ruled them inadmissible , however, saying they were too narrative in nature to be business records. In the federal cour t syste m on e cannot appea l until a case is all over. Even then, the judge may exercise great latitude i n making ruling s tha t allow or exclude evidence. Such rulings are held to be within th e soun d discretion o f the trial court. The ruling excluding these variance docu ments appeared fatal to our coal strike case, at least until appeal and quite

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possibly after. But Ray Hamilton and Ray Ganem of U.S. Steel's accounting department go t the original records underlying the variance reports an d reconstructed the variances. The two Rays prepared questions and answers to put int o evidenc e those pieces of the original records that supporte d each elemen t o f th e variances , a toug h tas k tha t too k the m al l night . Freshly shaven and breakfasted, bu t with no sleep, they appeared o n th e witness stand and at the counsel table at 9:30 A.M . sharp. Ray Hamilton's impeccable questions and Ray Ganem's answers tabulating the identifie d underlying document s produce d a totally understandabl e result . The y established by admissible oral testimony the facts se t out i n the monthl y letters. They completed thei r performance b y lunchtime. Alan Morrison , who had felt good the evening before when he had bested me in the evidentiary battle, was now on the ropes. He requested a week's adjournmen t of the case. We, of course, acquiesced. If we had not, the judge would never have accorded us any relief if we needed it ourselves later on. Furthermore, our team could use a little further preparatio n time now that we knew the lay of the land. Moreover, at least the two Rays were tired. When we resumed, Tom Leary had som e documents t o ge t into evidence that were at least a s difficult a s my variance reports . He had th e office shi p up two book carriers on wheels with six shelves of law books; there wa s on e o r mor e marker s extendin g u p ou t o f eac h volume. H e argued th e case law on admissibility , picking ou t a case for eac h point . When he had gotten through hal f o f the first shelf, Judge Levet admitte d his documents. It was a good show. We got daily copy. That is , the court stenographer s worked i n relays, and by six o'clock i n the evening we had the complete transcript o f the day's proceedings all neatly typed and paginated. Don MacNaughton ha d the responsibility of going through the transcript to make sure that every point w e ha d trie d t o mak e wa s satisfactoril y buttone d dow n o n th e record. He simultaneously prepared fo r writing our posttrial memoran dum. During the day in court h e also had the chore of keeping track of the exhibits: those marked fo r identification , thos e accepted in evidence, those reoffere d wit h sufficien t basi s to se t u p a valid appellat e record , those still to be offered, an d those abandoned. He was superb, followin g the ebb and flow of questions and answers so competently that whenever I merely held out my hand he put into it the very document I needed.

The Stee l Tax Case I 97

Orison also read the daily transcript, not recording his time for billing purposes but fo r his own and White & Case's enlightenment, to see how we were doing. He liked the way we handled Alan Morrison. Many years later, on a bus to a Legal Aid theater party, Judge Henry J. Friendly told me he liked the White & Case style toward Morrison. We finished ou r cas e t o ou r satisfaction . Th e governmen t pu t o n a short case , consisting mostly of a statistician wh o looked a t our figures through the wrong end of the telescope and swore that they looked pretty small. My cross-examination a t en d o f th e da y o n th e genera l lin e o f "surely you jest" fizzledbadly. I sat down with the U.S. Steel statistician to prepare a more sophisticated approac h fo r th e morning. He slipped in a mathematical trick, much more complicated but no sounder than count ing to ten on the fingers of two hands and then counting back down to six on the fingers of the right hand, holding up the left an d saying, "and five makes eleven." Fortunately, I grasped that his suggestion had no validity and worked through it with him to corroborate my hunch. This left u s only with demonstratin g tha t the government statisticia n had n o basis for pickin g one end o f the telescope over the other, prett y well neutralizing his testimony. Judge Leve t decide d i n ou r favo r onl y o n th e 194 9 stee l strik e an d against u s on th e other issues , a decision tha t awarde d u s overall a few million dollar s bu t nothin g lik e th e coupl e o f hundre d millio n tha t knocking out two of the base years would have done. We appealed to the Court o f Appeals for the Second Circuit an d got a good panel , includin g Henr y J . Friendly, a classmat e a t Harvar d La w School of our tax partner, Joe Willard. Henry, a first-rate tax lawyer himself, had a splendid reputatio n a s an absolutel y straigh t shooter . I had served with him o n the Library Committee a t the Association o f the Bar for a number of years. We hoped he would be assigned to write the opinion on our appeal, and he was. We got a reversal an d a new tria l wit h a chance t o prov e ou r Jenk s Number 5 position tha t dirtie r furnac e burden s wer e the caus e o f ou r measuring years being so unprofitable. The y qualified a s an event . The ball bounced back in our court once more. The government agree d to settlement. We made a tentative handshak e deal on splitting the deficiency i n such a way that between the deficienc y

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and th e interes t w e woul d pa y exactl y hal f o f th e tota l tha t th e IR S claimed. This tentative agreement was subject t o review by two top IRS bureau chief s in Washington, Millie Seidman, and a genial fellow name d Art Biggins. A whole new process started. Having originally gotten Jenks Number 5 thrown out on motion, the government had never really investigated that claim thoroughly. They started in with a vengeance, asking for all kinds of papers never sought before. Among the many things we produced wer e appropriation requests , some of which were rejected i n the years 194 5 or 1946. The government contende d that had some of those appropriation s been approved, beneficiating plants would have been in place and the fur nace burdens would not have been so substandard. There were other similar points raised , and w e did ou r bes t t o quantif y th e effect , i f any, of those hypothetical plants on the furnace burdens . All the time we had to urge that it was a settlement we were trying to get approved, not a case we were trying t o win b y a preponderance o f the evidenc e o n ever y issue. Years later, Don MacNaughto n pointe d ou t tha t w e were engage d i n a type o f alternat e disput e resolutio n o r AD R settlemen t tha t wa s wa y ahead of its time. After abou t si x months o f intens e negotiation , we got th e principa l amount agree d to . Millie was in charg e of the divisio n tha t supervise d interest. She took the position, contrary to our experience in the Georgia and Florida Railroad receivership, that interest was only a calculation and that it could never be compromised. The U.S. Steel calculation of interest was hundreds of thousands of dollars lower than the one done by the statistician who reported t o Millie. Carl Schneider o f U.S. Steel understood the intricacies of the interest questions . Each of four year s had been set tled at a different figure . The interest rate under the statutory formula also varied from time to time. I suggested to Millie that although we were quite confident that the U.S. Steel figure would eventuall y be accepted, I would recommen d splittin g our differences jus t to get the matter resolved. Millie said, "No, Hal, interest is a calculation not subject to bargaining." About nine months later, Millie's folks finally came up with a calculation s o close to our s that i t was unbelievable. The total amoun t o f th e original interes t wa s approximatel y on e hundre d millio n dollars ; th e

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amount o n th e settlement figur e wa s about fifty million dollars . Millie figured we owed the government on e penny less than w e said we did. I offered t o pay the extra penny. Millie retorted, "No, interest i s a calculation not subject to bargaining." She never let on to seeing anything amusing in the position. The Steel tax case, as it was called, was the biggest case I had handled up to that point. Bob Tyson's successor, Web Walker, exulted, "It is as though the government ha d loane d u s one hundred millio n dollar s for twent y years at no interest." Two other ta x cases I tried ende d i n published opinions . In one , by the Court of Appeals for the Second Circuit, United States of America v. U.S. Steel (Navios), reversing Tax Court Judge William H. Quealy, we successfully establishe d tha t th e U.S . Steel Corporatio n di d no t shif t incom e overseas by charging excessive rates through it s offshore shippin g sub sidiary, Navios, in an effort t o avoid U.S. taxes. The other was in the Tax Court, and "50/50" Quealy split the difference i n a case about i n which year it was proper t o charge the shutting dow n o f a sulfur mine . These were both, as we say, "fact-intensive cases, " and they established White & Case as a contender at the IRS.

6 THE MCDONNEL L DOUGLA S AIRCRAFT CAS E

Growing up with a lawyer father gav e me an appreciation o f the need for Roosevelt's invention o f the SEC. When I was still in my teens, Richard Whitney's embezzlemen t mad e front-pag e news . H e wa s m y father' s classmate an d neighbor , s o the even t cause d shocke d discussio n an d debate at our family table. As president of the New York Stock Exchange, the symbol of the beleaguered busines s culture , Whitney had a higher duty than most. At the very time of his fall, Whitney was testifying agains t the legislatio n tha t eventuall y became th e Investmen t Advisor s Act of 1940, as other financial leader s had testified agains t the 193 3 and 193 4 Securities Acts. Others might clai m that "borrowing customers ' stock" was so common "on the street" that they didn't know it was wrong. Whitney couldn't. He was in Washington proclaimin g the probity of the system, with Rolan d Redmon d (counse l to the New York Stock Exchange ) and other s advisin g hi m o n the hig h standard s tha t th e commo n la w already imposed upo n th e brokerage community, when the news broke. Years later, when I was working with Dave Shenker, who was in charge of the SEC's legislative agenda in Whitney's day, Dave told me, shaking his Jimmy Durant e nose , "Hal, I couldn't hav e writte n a better scenari o myself. After that we could get anything we wanted from Congress. " Among Whitney's victims was the New York Yacht Club, which called in my father a s counsel. No one thought fathe r brilliant or flashy. Unlike Whitney, he didn't glitte r when h e walked. Father replace d Whitney as treasurer of the club and kept us abreast of Whitney's saga and of the legislative progress. 100

The McDonnell Douglas Aircraft Case / 101 Whitney, the nation's mos t prominen t businessman , went t o jail an d served a long sentence. I had had a ringside seat at one of the formativ e dramas of our era. Given the nature o f White & Case's practice, events at the SE C were never far away . We had as clients specialists on the floor o f the American Stock Exchange who had been around since the "Curb Exchange" was literally outdoors on the sidewalks of Broad Street. They pointed out to me just where the windows were, from whic h would-be buyers an d seller s communicated by shouts and hand signals to the brokers below. From time to time I encountered issues in the over-the-counter market , where the Pin k Sheet s reported dail y quotes o f other , even less-trade d stocks. Persons interested i n buying and sellin g these stocks could caus e quotes to be reported i n the Pink Sheet s although n o actua l trades ha d been mad e a t those prices and share s were not necessaril y available fo r sale or purchas e a t the quote d price , an ope n invitatio n t o fraud . Thi s market, largely the NASDAQ 1 today, is now kept trac k o f by the mos t sophisticated electronic reporting. How far we have come in two overlapping lifetimes! One of the proposals on the floor o f Congress as I write reflects a problem that came up in my Douglas Aircraft case s of the late 1960s . How do you honestly reveal what has not yet happened? The New York Times has labeled this the hottest litigation issue in the securities field today. In the fall of 1966 , at the beginning o f the escalation o f the Vietnam War, Douglas Aircraft Compan y made headlines by reporting huge an d unexpected losses. The year 196 6 was the beginning of the breakdown of society associated with tha t tragi c war. That hidden escalatio n brough t about those unanticipated losses. My children started, early in the Johnson Administration, to try to convince me to consider the wrongness of our intervention in Vietnam. They did not a t first persuade me, partly because one or two of them had th e facts wrong and talked about oil company and Rockefeller conspiracie s to protect offshore oi l in the area. But gradually, we all came to see the issue as purely a Cold War issue. Should we try to contai n "Communism" by 1. The Nationa l Associatio n o f Securitie s Dealer s Automate d Quotation s appears as NASDAQ daily in the financial press.

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force? I had alway s thought Winston Churchill' s answe r was right when he was asked how come England had declared war on Hitler and not o n Franco, when Franco seemed as repressive a Fascist as Hitler. "It's simple," the old man had replied, "Franco hasn't crossed any borders yet." We didn't understand who had created two Vietnams or the legal status of the border. In an y event, as time passe d I became increasingly con vinced that not only were we unlikely to win in Vietnam, but that we had little right to be fighting there, killing people over an unclear issue . The great majority o f the American peopl e began to feel the same way, and largely for thi s reason, I believe, Johnson di d no t ru n fo r a second ful l term. In the interim, student riot s increased an d a generation became alienated from it s government. Nixon didn't much tolerate noisy dissent, and he surrounded himsel f with like-minded people . One day the full text of the Huston papers appeared i n the New York Times. To be fair, they were never formally adopted, because of their exposure in the paper, I assume, but the y called fo r a reduction i n the civi l and constitutiona l right s of everybody in differing degrees . The section on students was one sentence: students were to have no recognized rights of any kind. I remember showing the reprint in the Times to Roger Blough and remarking that since the papers had not been adopte d by anybody, all we could do was go about our daily tasks, albeit with sadness in our hearts that we had an administration that could even think those thoughts. No Republican administra tion has since restored my confidence, although I admit that Reagan did not provok e a repetition o f the Nixon-inspired bruta l assaul t o n flower children demonstrator s b y militarized unio n folk s tha t I saw from m y window on May 8, 1970, after I had inherited Murphy's office overhang ing Broad Street. In 1966 , however, most of us did not foresee the tragic future. Certainly Douglas did not. The Douglas Aircraft Compan y produced civilia n planes. DC-8s were coming off the assembly line at a rapid rate , and the company had als o introduced the smaller, faster, two-engine DC-9, which sold like hotcakes. Douglas had a backlog of two billion dollars of orders. Wall Street considered i t a growth compan y in a n er a when growt h stock s were popular . With these sales, Douglas needed more capital and raised twenty-five mil-

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lion dollar s in the spring of 1966 . Don Douglas , Jr., who had taken ove r company leadership from his father, wrote a memorandum alertin g management to the need to raise capital and urging everyone to work hard to make the first financial quarter a great success. The first quarter's result s were good, and the twenty-five million dollars of debentures sold quickly. In the early summer th e directors decide d t o sell seventy-five millio n dollars more. Merrill Lynch, the underwriter, went out to California an d worked with Douglas on the figures for the current quarter ending August 30. But the figures began to look odd. The way you measure income in the airframe manufacturin g industr y is not easy. The production lin e held as many as thirty DC-8s and around fort y DC-9s . The sale price of each of those planes was tens of millions of dollars, constituting abou t a billion dollars o f incomplet e inventor y o n th e sho p floor i n various stage s of progress. As they moved along the floor, the standard SEC-approve d metho d o f accounting place d a n inventor y value on thos e uncomplete d airplane s representing, in rough terms, the percentage of the sale price equal to the percentage of completion. The accountants used sophisticated technique s for measuring the percentage of completeness of each plane. A commercial airplan e i s a complex piece of work. When I was taken through th e plant, I was shown two grades of insulated wire, practically indistinguishable to my eye, being used in the DC-10. The engineers had decided to use the finer of the two grades and had thereby saved five hundred pounds in the weight of the airplane. That's a lot of wire. So keeping track of exactly what percentag e o f completion eac h plane had reache d was a complex task, not complet e until al l the work slips had been col lected and audited by trained people. Another measuremen t dependen t upo n thos e determinations o f per centage of completion i s known a s the learning curve. In making something a s comple x a s a n airplane , th e tea m get s bette r a t i t wit h time . History has proven that agai n an d again . Just as when you put togethe r children's toys on Christmas Eve, if you have two of the same kind you put the second one together much faster than the first one. If you put the second one together 20 percent faster, the bet is that by the fourth on e you'll improve another 20 percent, and so on, every time you double the num ber. If that held true, you would be on an 80 percent learning curve. In the

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history of airframe manufacturing , althoug h learnin g curves show blips on rare occasions, over time they are a reliable predictor of the future . Nevertheless, indications in early July 1966, before an y announcemen t of increased militar y buildup, showed that constructio n o f the airframe s on the floor might be lagging. No one could tell for sure until the accountants finished their work. The price of the stock fell, and pundits said that Merrill Lynch customers had starte d sellin g Douglas stock. The price of the stock fell further, an d the rumors tha t ther e was trouble o n the production lin e increased . Do n Dougla s calle d a conference, an d Merril l Lynch and their lawyers , the accountants, and interna l financial peopl e and executives huddled, deciding what to do. No one ever likes to put off the date of a financing. You know where the market closed yesterday. You don't know where it will close today, and you have absolutely no idea what the ticker will show by the time the August 30 figures are assembled and released to the public. Everybody thought the worst that could happen would be a breakeven for the period through August 30, but no one knew enough to make such a prediction . Th e director s decided , i n vie w o f th e possibl e leak s an d rumors, to put ou t some kind o f a statement, so the team prepared wit h elaborate car e a press release, the bottom lin e of which was, "Profits, if any, will be nominal." For a compan y expecte d t o ear n a tidy profi t pe r share , that wa s a strong conservative statement, a real warning that al l was not well. Some Douglas executives thought that in view of the excellent sales of both DC8s and DC-9s, the company's experience in building DC-8s and the excellent desig n o f th e DC- 9 an d it s fine record , s o far , a s an airplane , th e statement was too gloomy. Douglas Aircraft issue d the prospectus for th e seventy-five-million-dollar debenture s a few days later, and it, too, recited, "Earnings, if any, will be nominal." By the end of September the accoun tants had finished their work. To everyone's surprise, the percentage-of completion figures signale d muc h wors e tha n a breakeven . Dougla s Aircraft ha d lost millions of dollars in the period that ended August 30. Moreover, people were beginning to understand th e reasons, and th e future looke d grim . The Vietnam buildup was much, much bigger tha n had eve r been admitte d b y the government . Supplier s whose promise d deliveries had first slipped for a week or so were now acknowledging they

The McDonnel l Dougla s Aircraft Cas e / 10 5

would be months behind. The learning curv e was beginning t o revers e itself. If a panel did not arriv e and other material had to be installed anyway, it took ingenuity to figure out how to do it out of order. Furthermore, the workforce was frustrated b y these delays. Some lost their tempers and deliberately shoved screwdrivers into instruments they couldn't install or had to rip out. No one in the industry had eve r experienced suc h a time. Panic began to take over at Douglas and in the financial markets. What was a cloud on the horizon in early August was a hurricane by October. Still Douglas remained a fine company. The only American competito r to Boeing as a manufacturer o f civilian aircraft, they made planes at least equal to Boeing's. No one could afford t o let Douglas go down the tube. In 196 6 bankers stil l acted like bankers. They didn't len d you mone y without th e certainty of getting i t back on tim e with ful l interest . Do n Douglas went aroun d t o th e bankers an d pointe d t o th e continuousl y high demand fo r the planes. They would be paid for when delivered, and delivered the y would be , though a little late. The bankers by and larg e turned a deaf ear . Don went to the airlines, and som e of them di d com e up with som e cash to keep the assembly lines going, though deliver y of the planes would be delayed. The dean of class action lawyers in the securities area, Abraham Pomerantz, was lead counsel for plaintiff s i n a series of lawsuits started befor e the ink was dry on the bad news, charging violations of both Section 10 b of the Securities Exchange Act of 193 4 and Sectio n 1 1 of the 193 3 act. A 10b act claim relies on fraudulent misrepresentations . Section 1 1 provides an absolut e liability for misstatement s by the issuer o f securities sold t o the publi c an d excuse s misstatement s b y other s onl y i f the y properl y relied upo n expert s suc h a s certified publi c accountants . White & Case were asked to defend Douglas. The cash balances of Douglas Aircraft, a California company , sank out of sight. East in Sain t Loui s sat J. S. McDonnell, Jr., the founder o f th e great maker of military airplanes. All his supplies came through o n time. For years he had wanted to be in the civilian market because he knew that someday the military would be cut back. He had always looked with envy at his contemporary and friend, ol d Mr. Douglas. When things got rough enough, founder Dougla s went to see founder McDonnell . They quickly agreed on a merger. There was just one difficulty: the antitrust law.

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Mr. Douglas knew a great antitrust lawyer, Julian O. Von Kalinowski of the Gibson Dun n firm i n Los Angeles. They called him. Von stroked hi s chin an d decide d tha t th e fact tha t Dougla s was mainly in civi l aircraf t and McDonnell i n military was not enough . The Department o f Justice saw them a s potential competitors , and besides, they made a few of th e same products. Von Kalinowski knew, however, about th e "failing com pany" doctrine. After all , if you are about t o go out o f business anyway, disappearing fro m th e scene , what's th e harm i n being snappe d u p b y your competitor? He would be the only one left if you disappeared. Von Kalinowski went to Washington and made a sympathetic case. The department didn' t see any advantage in Douglas's going under. They told Von Kalinowski that i f he got up a memorandum statin g the facts i n a hurry, they'd review it in a hurry, and perhaps a merger could go through before Dougla s slippe d dow n th e drain. So Von Kalinowski an d every body worked like the dickens to paint a bleak picture of Douglas Aircraf t Company. They took every fact tha t looked grey and made it two shades darker. The antitrust division of the Department of Justice did not oppose the merger, and it was completed. Orison supervised discovery at the start of Abe's lawsuit. Only the general counsel' s file containe d a cop y o f Vo n Kalinowski' s report . Ab e Pomerantz di d no t believ e in wasting time i n lawsuits. He preferred t o serve a good complain t an d settle , but the courts began to award fees in class actions more on the basis of the time spent than o n a percentage of the recovery. So Abe had other lawyers in his shop who drafted an d served excessive requests for document s and depositions. The opposition woul d then have to bargain to whittle down the excessive requests. In our adversary system each side was and is expected to gain the maximum benefit s for it s own client . Once you have bargained t o limit a demand yo u ar e then suppose d t o produc e i n accordanc e with th e literal term s o f tha t reduced demand . The lawyer's function i s not to g o through th e docu ments saying, "Oh, here's one the other sid e could use," but rather , with scrupulous attention, to read the limited demand and produce everything that is actually called for and no more. A billion-dollar company has billions of pieces of paper. By agreement, Orison and Abe limited search of the files to those of twelve major execu tives, not includin g the general counsel. So the potentially embarrassin g

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document, Vo n Kalinowski' s pessimisti c report , di d no t surfac e i n response to the limited search. Of course, Abe Pomerantz was so good a lawyer that just as we were going to trial he got the SEC to do a sweep of other government agencies; they found an d gave Abe a copy of the report, probably taking on more than the SECs role in a case not their own. But Stanley Sporkin, head o f the enforcement sectio n o f the SEC , held th e view that an y synergy the SEC could ge t from th e private plaintiffs ba r helped th e governmen t an d didn' t cos t th e budge t anything . When i t finally surfaced , th e Von Kalinowsk i repor t didn' t d o u s muc h harm . Judge Constance Baker Motley spotted it for just what it was. Motley had bee n a t Columbi a Universit y La w School when I was. I didn't know her well, but she was an unforgettable person , almost six feet tall with a Junoesque bearing an d dar k black skin. After la w school sh e worked with soon-to-b e Justic e Marshall o n th e important civi l right s cases of the fifties and won some impressive victories on her own. She was then elected president o f the New York City Council. She was not onl y a brilliant lawyer, but streetwise . Nevertheless, a good many lawyers determined to look down on her after Presiden t Johnson appointed her to the Southern District. In an effort t o make counsel provide a definition sh e could use without dispute, she asked, "What is a corporation?" Failing to appreciate what she was doing, counsel for bot h side s in the Douglas case s snickered, "She doesn't eve n know what a corporation i s and ha s to ask. " No on e eve r made a greater mistake , except those who sai d that Egyptian s were to o dumb to learn to pilot ships through the Suez Canal. In plannin g ho w t o approac h Judg e Motley , I wa s bolstere d b y a wartime experience. When the Alabaster was patrolling out of Cape May, New Jersey, and I could get away to the company of Kak and Nancy fro m time to time, when we put into port, I had been able to resist listening to the kvetching of the other officer s abou t ou r skipper , Shorty Brice. His primary problem was that a t age forty he had had enoug h experienc e to be scare d fro m tim e t o time . H e wa s alon e i n realizin g w e wer e no t immortal. It was different i n the lon g mont h an d hal f tha t i t took t o cros s th e Pacific. I was still executive officer a s well as navigator, and Brice left th e details of management t o me. He kept to himself excep t when meal s or

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specified dutie s require d hi m t o spea k with othe r officers . I , however, listened to their constant criticism and even joined in occasionally. Before that I had always been able to sit down with the captain and talk him into avoiding any particularly foolish action . But when I got into the habit of criticizing him, even away from hi s presence, that undercut m y ability to influence him, and it took a deliberate return to the discipline of the three monkeys before I began to regain it. I liked and respected Judg e Motley, and i t was not difficul t t o do; but even in the confines o f our office , I declined to listen to any belittling of her. Judge Motley decide d tha t th e first o f the thre e case s she was to tr y would be the Section 1 1 case against the issuer, Douglas Aircraft, involv ing the unfortunate prediction , "Earnings, if any, will be nominal." The new corporate entity, McDonnell Douglas, mounted the defense. For the benefit o f my clients and fo r th e body politic, we used a nottoo-well-known doctrine , "vouching in. " We wrote a one-and-one-hal f page letter to Merrill Lynch, vouching them in. The letter said, in effect : It is your fault that any language about "earnings, if any, will be nominal" was ever used. Your leak to your customer s o f the earl y doubt s about the August 30 figuresmade it necessary to issue a statement. You helped draft that statement, and you are responsible for it. We offer you the opportunity to take over the defense of this case and represent all of us against this charge; if you do not do so, we will hold you responsible for the outcome. We did no t nee d t o an d di d no t sen d a copy of that lette r to any othe r party to the lawsuit. I then went to Abe Pomerantz an d sai d that I represent a number o f individual defendant s wh o don' t hav e th e million s o f dollar s yo u ar e claiming. Why don't you let them ou t o f the lawsuit, and then we won't have the long disputes over which defendants hav e an excuse because of reasonable relianc e upo n counse l o r accountants . Thi s wil l no t onl y shorten the trial, but it will also help you by keeping the record clear of a lot of exculpatory evidence which the trier of fact might confuse betwee n its importance to the issuer under Sectio n 11 , who has no such defenses , and its importance to the others, who do.

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Abe agreed, good lawyer that he was, that it made sense to dismiss the other defendants from the lawsuit. We simplified the trial and made it easier for both side s to call witnesses and freed ou r human client s from th e fear of liability from this trial. The discovery heated up when Judge Motley set a trial date. Some of the discovery wa s to tak e plac e i n Lo s Angeles fo r th e convenienc e o f th e defendants. Bob Block, who was a partner i n Pomerantz Levy Haudek & Block, was scheduled to take depositions of the Douglas people. William E. Haude k publishe d la w revie w articles , makin g thei r la w position s respectable. Abe decided the overall strategy: what cases to take, to push, to settle. In Abe's elder-statesman period, Bob Block had to develop the facts. Bob's aggressiveness and lack of subtlety led him to place a large board in th e lobb y o f th e Centur y Plaz a sayin g tha t th e deposition s i n th e McDonnell Douglas cases were in the Crystal Ballroom on the mezzanine floor. I chastised Bob about that. His first witness there was Albert Victor Leslie, the former chie f financial officer o f Douglas Aircraft. Bob had had a certain amoun t o f fun pointin g out that mos t o f Douglas's people did not hav e college degrees. The airfram e industr y had com e to maturit y with the Ford trimotor an d the DC-3s in the middle of the depression , and mos t o f the surviving engineers an d othe r airfram e manufacturer s had qui t colleg e an d gon e to wor k i n thi s on e o f very few burgeonin g industries in the thirties. So Bob Block, who as a lawyer with a postgraduate degree, delighted i n establishin g tha t th e executive s who ha d bee n making these sophisticated multimillion-dolla r decisions were not eve n equipped with an undergraduate degree . He didn't care who had discovered the learning curve that later academics taught, or who had, without graduate aeronautic degrees, produced the DC-3, the most successful air plane ever to mount the skies. He simply wished to make the record refl ect that they lacked formal education . Leslie had run away to sea at the age of twelve and received all his education before th e mas t i n the schoo l of hard knocks . It really made n o difference to the ultimate outcome of the case, but I was determined that I was not goin g to allow Bob Block to browbeat this CFO by emphasizing his lack of formal accounting training. The morale of a witness is always worth preserving. As The Clockmaker said a century and a half ago , "If attorney s coul d wind a man u p again ,

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after he has been fairly run down, I guess they'd be a pretty harmless sort of folks." So I encouraged Leslie, when asked about his accounting education, to start from the most recent end. He said, "I've been learning all my professional life; my most recent educational experience has been as CFO for th e Hughes Tool Company, which has sophisticated measurin g systems most nearly like those appropriate fo r th e Douglas Company." He went back one or two other employment experiences relating to airfram e percentage-of-completion techniques , establishing his competence in that area, an d Bo b neve r go t o n th e recor d tha t hi s forma l educatio n ha d stopped at age twelve. His opinion of Bob Block as a lawyer was "He doesn't kno w a starboard forwar d roya l stunsail shee t fro m a duff ba g halyard." I had to confess that I couldn't identify a duff bag halyard either. He told me, "The cook boils up a plum duf f i n a cheese cloth bag which h e ties closed. He leaves a bit of the string hanging out so he can lift the duff out of the pot while it's hot. That's a duff bag halyard." You learn all kinds of things as a lawyer. We became clos e friends, an d h e took m e to visit his wife, who ha d what proved to be terminal brain cancer . Because inflation wa s the topic of the day, we discussed the Diary of a Country Parson, written in the early 1800s, which reflecte d th e terrible consequence s o f the inflation o f th e Napoleonic er a o n th e Britis h countryside . I attempted t o lighte n th e atmosphere b y recalling Henry Adams's description o f the swiftness o f New England spring. Afterward, I found o n checking that it occupied less than a paragraph and had merely revived my memories. Bob also took the deposition o f Don Douglas . I have, unfortunately , often becom e angry when a counsel has misquoted a witness. Bob was notorious for this fault. He may not have heard correctly, but whatever the reason, he would have, either written out or in his head, a series of questions. The first would attempt to establish a premise, and later question s would try to build on that premise. Don Douglas was a careful wordsmit h whom we had trained to listen carefully to the actual words of every question. Bob, however, did not listen with equal care to the answer. He would say, in effect, "You have just said A, B, C, and D. I now ask you how in the light of those facts, etc." The previous answer or answers, however, would hav e revealed, "A, minus 1 ; B, absolutely no ; C, plus 2 ; D, doesn't seem to fit the picture."

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I would objec t t o the question a s assuming facts no t i n evidence. Bob would restat e the question, still assuming facts no t onl y not i n evidenc e but precisely contrary to what the evidence was so far. I would then blow my top, pound the table, and assert that we had not come across the continent to waste our time on this kind of incompetent interrogation. Block, who was marking his exhibits the old-fashioned wa y with letters, finally reached QQQQ, or four Q's. I did not take advantage of that in my excoriation, however. Don Dougla s said , a s we broke u p fo r lunch , "Once mor e int o th e breach, once more." I sent him th e transcript t o correct an d sig n with a note saying that I appreciated a client who quoted Henry the Fifth, act 3, scene 1, rather tha n th e misapplicatio n o f Dick' s remar k t o Jac k Cade: "The first thing we do, let's kill all the lawyers," in Henry the Sixth, Part II, act 4, scene 2, which I was more accustomed to hearing from clients . Eventually, the depositions and other pretrial discovery were done. Ray Hamilton, Don MacNaughton, Sharon Grubin, and I made up the White & Case trial team. Sharon, not yet admitted, sa t part o f the time in th e empty jury box. For the final part o f the trial she replaced Ra y and Do n entirely and did a super job. Bob Block continued hi s irritating way s and I objected strenuously , though unde r bette r contro l than without a judge present. Bob berated me. Judge Motley spoke quietly. "I have not heard enough of this case yet to know who is going to be the loser, but I know well that Uncle Sam is going to be a big winner if either of you addresses the other instead of the bench one more time because, if that happens, I am going to impose the biggest fine for contempt yet heard of in this district." From then on she ran a tight courtroom. The witnesses in effect rebuil t about thirt y DC-9 s durin g th e week s o f th e first phas e o f th e trial , explaining the delays, how they were cured, how the learning curve eventually returned to the path it would have been on but for the delay, so that the fiftieth DC- 9 cos t no mor e than ha d been originall y forecast. Wha t had appeared as a hurricane in October 196 6 looked, in the light of hindsight, like a temporary glitch. For the sake of gamesmanship, Abe Pomerantz threw in the claim that our statement of use of proceeds of the funds being raised by the prospectus wa s als o "false an d misleading. " Abe knew thi s wa s a red herring .

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When we came to the damages part of the trial he admitted as much an d had no evidence to submit that the market or anyone was misled or infl uenced or hurt in any way by the language used. The prospectus had said the proceeds would be used to build up inventory, and they were, but not overnight. When th e funds wer e deposited, the bank automaticall y pai d itself down the amount o f inventory loans outstanding, and as the planes were built the amount o f the loans gradually increased again . Everybody knew it worked that way. Twice during the trial I caught Abe Pomerantz in an outright distortio n of the facts. The first time, as we left the courtroom to walk up and down the spacious marble halls of the Southern Distric t Courthouse , a superb building constructe d durin g th e depression t o give work to fine crafts men, Abe put his arm around my shoulder in a gesture reminiscent of my father-in-law o r of Orison an d said , "Hal, you gotta understand, I come from th e other sid e of the tracks an d I don't hav e the fine ethical stan dards you do." "Oh, Abe," I said, "that's no excuse." The second time he tried i t I was less tolerant. I could never agree with the message of what is nevertheless one of my favorite poems: ... Be secret and take defeat ... For how can you compete Being honor bred with one Who, were it proved he lies Were neither shamed in his own Nor in his neighbors' eyes. —W. B. Yeats At a trial, whatever philosophers may say about the closeness to reality of the picture reflected i n a trial transcript, lies can be and are exposed an d often hurt the liar in fatal ways. Douglas Aircraft, fortunately , ha d a n African America n vice president at the top o f personnel. His duties included forecastin g th e number o f employees and man hours needed to complete each airplane, an essential part o f th e comple x proces s b y whic h percentag e o f completio n wa s determined. He testified t o the integrity of the process as a whole. Judge Motley asked him who approved th e final statement i n the prospectus. I

The McDonnell Douglas Aircraft Cas e / 113 shall never forge t hi s answer. Looking her straigh t i n th e eye , he said: "We did, your Honor. " We did not win thi s Section 1 1 part o f the case, where the standard wa s liability for eve n innocen t misstatement s o r incomplet e statement s o f th e truth. Judge Motley wrote a long and carefu l opinion . A short quotatio n indi cates the qualit y of her finding: Finally, with regard to the income, if any, statement, the court finds tha t Douglas wa s require d t o disclos e tha t th e forecas t wa s base d o n a n assumption tha t condition s i n th e Aircraf t Divisio n woul d hav e t o improve befor e th e compan y coul d expec t t o avoi d substantia l losse s and that earlier forecasts i n 196 6 had to be modified. Disclosur e of these facts was required in order to make the statement abou t the defendant' s earnings prospects not misleading . The assumptio n tha t condition s woul d improv e sufficientl y fo r th e company to avoi d substantia l losse s was material sinc e the assumptio n was sufficientl y doubtfu l tha t reasonabl e investors , ha d the y bee n informed o f th e assumption , migh t hav e been deterre d fro m creditin g the forecast . The court similarly finds that disclosure of the fact that previous fore casts ha d faile d wa s require d sinc e disclosur e migh t hav e place d investors o n notic e eithe r tha t Douglas ' forecastin g technique s wer e faulty o r tha t th e advers e condition s affectin g th e Aircraf t Divisio n made incom e forecastin g unusuall y difficult . I n eithe r case , reasonabl e investors might have thereby been deterred fro m creditin g the forecast . The cour t canno t find tha t investor s were give n adequat e notic e o f th e failure of the prior forecasts by the following passage in the prospectus. The most recent in-depth analyse s of costs incurred an d likely to be incurred indicat e that the costs of the early DC-9 aircraft ar e greater than previously estimated. The costs of recruiting, training, and assimilating the thousands of new employees in the Aircraft Grou p . . . ar e proving to be greater than was used in prior cost estimates. (Pis ' Exh. 28, p. 5) (Emphasis added.) This passage did no t giv e investors sufficien t notic e that previou s earn ings forecasts fo r th e compan y a s a whole ha d failed . At most i t migh t have suggested tha t certai n cost s had bee n greate r tha n anticipated . I t would no t clearl y advise the investor that prior incom e forecasts fo r th e

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company had seriously over-stated income. (Beecher v. Able, Marc h 22, 1974, 374 E Supp. 341, at 354) That ended the first part of the trial, but five other segments remained: (1) the damages trial on the Section 1 1 liability just completed , (2 ) th e 10(b)5 liability phase for th e seventy-five millio n dollar s of debentures , (3) damages for tha t caus e if liability were found, (4 ) the 10(b) 5 liability phase of the original twenty-five millio n dollar s of debentures, and (5 ) damages for that phase. We came to the issue of damages for the Section 1 1 claim. The millions of dollars of debentures were to be tested by their purchase price against the "value" of a debenture o n th e dat e of suit. At that tim e the marke t price was about $75.50. Thereafter, the debentures sold on the exchange at much lowe r tha n $60.0 0 apiece , makin g th e possibl e damage s i n th e neighborhood o f forty dollar s per debenture. After th e merger they sold for ove r $100.0 0 apiece , arguably indicatin g tha t thei r tru e valu e ha d always been around par and hence that there were no damages. Two difficulties attende d thi s argument. First, the quite-well-accepte d theory that a t any given time the market i s right. What a willing buyer pays to a willing seller best measures value. In a widely traded security , willing buyers an d willing sellers abound, an d almos t by definition th e price the y se t i s th e valu e o f th e stock . Th e secon d difficulty : Sinc e McDonnell ha d bought th e whole company, and thus coul d us e its tax loss carryforward an d coul d take in the whole of the eventual favorabl e cash flow withou t payin g incom e taxe s o n dividend s a s individua l investors do, it would be thought unfair to try to measure the value of the individual shares by that yardstick. Nevertheless, only those who sold out at the bottom had realized losses. The law, however, did not look to this factor becaus e those who sold ou t at a loss might have bought investments that went up as fast or faster, and those who did not sell might also have made even better investments. The law let the formula stan d a s the statute state d it—damages consiste d of the difference betwee n the purchase price and the "value" at the time the suit was commenced. Sharon Grubin, then a brand new lawyer and today a magistrate judge in the Southern District , wrote our memorandum t o the court on the law of damages.

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The damage trial shaped up as a battle of experts. Abe brought in a seasoned but no t shopwor n exper t who had taught a t Yale. He did a pretty good job, emphasizing th e "market i s right" theory t o appl y a n uppe r limit or maximum price and contending for a value even lower than tha t because the public had been spared part of the bad news. He downplayed the merger for the right reasons. On cross-examination h e held up well. I asked him if he really ever expected that Douglas Aircraft would go out of business. Wouldn't commo n sens e indicate that it would soone r o r later come back, and by implication pay off the debentures in full? He looked at me for a long moment before sayin g something that later proved to be true: Mr. Fales, great corporations don' t normally go out o f business, the employees ar e no t throw n ou t o f work , th e usefu l product s the y make don't disappea r fro m th e market place , but the y do see k the protection o f the bankruptcy court s an d the y do present plan s o f reorganization an d th e commo n stockholder s an d th e holder s o f subordinated debentures may be in substantial doubt for a long time as to whether the y will survive and, if so, at what leve l and when . Under those circumstances, the subordinated debenture s quit e reasonably declin e markedl y i n value. Those who com e i n wit h ne w money to hel p th e compan y ge t priority ove r eve n the banks an d other creditors superior to the subordinated debentures. He wa s scorin g Browni e points , s o I turne d t o a ne w subject . Th e debenture price didn't fal l like the October 198 7 crash an d then slowl y rebuild; it went down in uneven bumps and came up in spurts followe d by declines until the final bottom then slowly and unsteadily improved. I asked him t o describe the "value" reasons that lay behind eac h of thes e blips. Fortunately, he had done his homework too well and was willing to explain eac h bump . I only remembe r on e a t thi s lon g remove , but h e explained a drop of about three points from, say, eighty to seventy-seven, shortly recovered, by the fact that on that day Boeing came to market with a somewhat simila r deb t offering. H e went o n to say that investor s who wanted to be in the market for airframe manufacturers' debt would find it tempting to sell Douglas and buy Boeing. He was probably correct, and if

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you unequivocally accep t the "market i s always right" theory, he would have been home free. He gave us instead the chance to urge that factor s extraneous to the "value" of the underlying security could affect it s stock price, even conceding there could be such a thing as "panic selling" that could, on occasion, drive a stock lower than its true worth. Now we were in a horse race. McDonnell Dougla s ha d ha d dealing s wit h Morga n Stanle y a s a n investment adviser , and the y asked it to provide them exper t testimony . They offered u s their senior officer, Madison Haithe. Maddy reported that Morgan Stanle y wa s willin g t o hav e hi m testif y tha t th e valu e o f th e debentures neve r went below eighty to eighty-two. I was sure we could justify eighty-five. Maddy further sai d that Morgan Stanley had had a full partners' meeting t o agre e a t what figure the y coul d pu t thei r famou s name on the line and that their price for offerin g thi s view would be one hundred thousan d dollars . Georg e Roudebush , McDonnell' s genera l counsel, was shocked. McDonnell was horrified. A thrifty Scot, he had not come from being a poor boy to being the head of, and a substantial owner of, a major corporatio n by giving away money. With my usual inclination to rush i n where angels fear t o tread, I took the position tha t I wouldn't put a witness on the stand who was paid one hundred thousand dollars to testify a s an expert, when the testimony would no t occup y more than a couple of days and the permutations were not boundless. I said I wouldn't put o n this trial an expert witness on damages whose fee was more tha n twenty-five thousan d dollars . No court hearing a higher figure than tha t would believe that the witness was not bought. If McDonnell coul d get Morgan Stanley for that price, I would use them; otherwise we would just have to look elsewhere. I told Maddy all of this, and eventuall y Morga n Stanley agreed with McDonnell on a fee of twenty-five thousand dollars. Maddy testified clearl y and stoo d u p to cross-examinatio n t o perfec tion. He did put the value of the debentures at eighty-two, however, rather than a t the eighty-five I thought th e facts justified. I n a posttrial memo randum Sharon and I put together, we argued for the higher figure, saying the court was not bound b y the expert testimony , even of our ow n wit ness. Judge Motley agreed in a well-reasoned opinion and set the value at eighty-five. The plaintiffs concede d tha t we had establishe d tha t a rapid rise in interest rates had dropped the value of any debentures bearing the

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same interest rat e to eighty-eigh t befor e th e bad new s became known . Thus, a maximum o f three dollars per hundred was available to the buyers of the debentures (see Beecher v. Able, 435 F. Supp. 397,400). Both Abe Pomerantz an d I felt tha t w e had give n the Sectio n 1 1 trial our best shot. I discussed our strategy at length with Orison and with the general counse l fo r McDonnel l Douglas , suggesting that Abe, who was financing th e plaintiffs' cas e in accordance with ou r American traditio n in contingency cases, would be happy to avoid another trial , that Judg e Motley would b e grateful no t t o hav e to repea t a large part o f the ol d trial, and that we had made our best case. Judge Motley's opinion led me to believe that, although Dougla s Aircraft ha d mad e an erroneous statement in predicting that "earnings, if any, would be nominal," she viewed it as an honest mistake, for which the issuer was liable to the buying public, but not as a dishonest attempt to bilk the public, for which the consequences might be much greater . I suggested we try the 10(b ) 5 case "on the recor d o f the Section 1 1 case," that is , using no new testimony, just testing the 10(b ) claims against the existing record. Our side agreed and, after a certain amount of backing and filling, Abe did, too. Pleased at not having to sit through a repetition of the trial, Judge Motley wrote a good opinion, holding that Douglas had no t been dishones t i n the legal sense of scienter, that is, knowing falsehood, with respect to the main claim about "Earnings, if any, will be nominal" (see Beecher v. Able, 435 F. Supp. 397, 411,414). Those two opinions ac t like bookends t o the 193 3 and 193 4 acts an d are taught i n law school classes on the securities acts. They stand a s reasonably rare holdings on an identical trial record on two separate statu tory standards. Because of the final judgment rul e for appeal s in the federal courts , it would have been difficult, i f not impossible, to get Judge Motley's rulings on these parts of the case up to the Second Circuit for review . With a liability o f unde r five million dollar s o n th e larges t par t o f th e claim , i t seemed to me the moment to start bargaining, and I so recommended t o George Roudebush , genera l counse l t o McDonnel l Douglas . As I ha d done many times before, I took the plane on to Sain t Louis. The head quarters o f the compan y overlooked th e airfield , an d anytim e on e me t with McDonnell, he kept you in his office unti l the plane you were to take

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home had drawn up to its gate. How he got his information, I never knew, but I always made the plane home with only minutes to spare. George and I met wit h McDonnel l ove r lunch t o discus s settlemen t possibilities and parameters. Throughout lunc h McDonnell described t o me the virtues of the WATS telephone line and the savings to be achieved if I would remembe r t o use the WATS line in calling Saint Louis. I can't recall his talking about anything else, but we came away from lunc h with authority to enter into settlement talks with Abe Pomerantz. We started th e comple x negotiations—comple x becaus e w e had t o evaluate the correctness of Judge Motley's finding of Section 1 1 liability against McDonnell Douglas, the correctness of her finding of no 10(b) 5 liability, the correctness of the damage calculation, and the possibilities, as yet untried , o f an y liability fo r th e issuanc e o f th e twenty-fiv e millio n debentures in the spring. Two intertwined facts enhanced those possibilities. Don Douglas's memo to try for maximum results in the first quarter could be viewed by the cynical as a request to bend accounting rules as far as possible to achieve a good result rather than as an exhortation t o hard work. And at least one accounting decision raised questions. Lay persons find i t har d t o understan d tha t ever y figure o n th e balanc e shee t o r income statement o f a large corporation, including cash, is an estimate . The purpose of an accounting audit is to give a truthful pictur e of a corporation's financial health . If you pay an amoun t i n the first quarter t o cover the corporation's liabilit y on that ite m for th e whole year, do you debit the amount paid or one quarter of it? An issue of this kind, though more complex and less sympathetic, had been resolve d by the financial people at Douglas in a way that was favorable to first-quarter earnings. We had a reputable auditor who would testify that proper accounting treated the item a s Douglas had, but h e privately conceded tha t hi s view might well be challenged and might, in fact, represent a minority in the profession at the time of trial, although he believed it to have been the majorit y practice previously, at least in 1966. Another elemen t i n th e settlemen t o f thes e clas s actio n case s arise s because ther e reall y ar e n o plaintiff s wit h an y substantia l individua l amounts at stake. A holder o f ten thousand dollars ' worth o f debenture s which have fallen 3 percent in value has a claim worth three hundred dollars. Even th e rar e holde r o f on e hundre d thousan d dollars ' worth o f

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debentures has a claim worth onl y three thousand dollars . The real party in interest is the lawyer. The total amount o r structure o f any settlement has to be in an amount sufficient t o satisfy the ego and the pocketbook of the plaintiff la w firm. A lawyer can enhanc e his reputation eve n when a court decide s against him. A friend o f mine with good press rapport go t his picture i n the New York Times with a caption readin g "Lawyer loses novel argument in Supreme Court." For a lawyer on a contingency, losing costs money, but settlin g a class action fo r a result that rate s an insuffi cient fee brands the lawyer as a cowardly loser in the eyes of his peers. The final element in this case required care to structure a settlement that would bring an equitable share to each of the six subclasses. One had t o find a formula for reimbursing the purchasers of the common stock, of the twenty-five millio n debentures, both those who converted and those who held, and the purchasers o f the seventy-five millio n debentures , divided into thre e classes . Bein g realists , w e worke d wit h Ab e o n th e overal l amount first. All along, I thought that if we could get this case in a posture to settle (and it was a case that merited settlement), a fee of around $1 million would assuag e Abe's ego even though, having had to go to trial an d spend that much time , energy, and real lawyering away from othe r case s and having had to lay out real money for transcripts, duplicated discover y documents, exhibits, and experts, his firm would lose money on the case. Accordingly, after months of bargaining, we came to a figure of $5 million for the total case, including lawyers' fees. To the occasional distress of codefendants I always tried t o sta y out o f negotiation s ove r the actua l amount o f the fee. I resisted the formula, "Defendants wil l not contes t a fee of X dollars." It is the court's call, and I always thought it dishonorable to help a lawyer get a fee he wasn't sur e the court would approv e o n it s own. Judge Motley approved the settlement and awarded plaintiffs' coun sel $1.5 million plus disbursements ou t of the fund. We also settled with Merrill Lynch on our vouching-in letter for $.75 million in a tough negotiation wit h Donal d T . Regan, late r secretar y o f th e treasury . Georg e Roudebush manage d to get an additional $. 5 million fro m th e insuranc e carrier for McDonnell Douglas. The total sum our client had to lay out in settlement was thus under $4 million. We tried har d t o get a rebate provision i n the settlement, in cas e not enough debenture holders showed up to use the whole fund i n the way we

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had i t se t up. Abe said h e had bee n caugh t o n tha t pron g onc e an d h e would never let it happen again. When we finallygot all the claims in, they amounted to so much less than $5 million that we petitioned the court to reduce the settlement to the amount of the claims as measured by the settlement formula , o n th e groun d tha t we had al l been laborin g unde r a mistake of fact abou t th e number o f viable claimants. Not surprisingly , Judge Motley denied this motion, affirmed b y the Court of Appeals. After almost on e doze n year s o f litigation , th e cas e finally concluded b y a n opinion by Dudley B. Bonsai, a U.S. district judge sitting by designation in the Court of Appeals in April 1978. It never pays to join i n the gossip putting dow n th e judge who hold s your fate in her hands. Look instead for good qualities. In Judge Motley's case this was easy, but I nevertheless told our associates about my experience with Shorty Brice. Sometimes we could show the plaintiffs' counse l that their suit was without merit. A class action suit withdrawn before any communication to the "whole class," without any payment to the plaintiffs, based as it would be on thei r givin g up somebod y else's rights, could fo r som e years end u p being dismissed with a stipulation signe d by the U.S. district judge, without expensiv e mailings and publication t o the putative clas s members. I became fairly adep t a t accomplishing this while we had "true," "hybrid," and "spurious" class actions. After a 1966 change in the Federal Rules, the class had to be certified a s "maintainable" as soon as practicable and, if so maintainable, all the members of the class had to be notified . The new rule provided tha t "a class action shal l not b e dismissed o r compromised withou t th e approval o f the court, and notic e of the proposed dismissal or compromise shall be given to all members of the class in suc h manne r a s the court directs. " The possibility remaine d o f per suading the court that i n the next routine communicatio n t o sharehold ers, suc h a s a quarterl y report , a low-ke y mentio n o f th e propose d dismissal was sufficient. Th e reputation o f the counsel for the defendant s became the touchstone for the exercise of this discretion. Being associated with White & Case was a real advantage. From at least 1966 on, the best way to dispose of all but the most trivial of class actions was to be prepared to go forward on the merits of the case,

The McDonnel l Dougla s Aircraft Cas e / 12 1

with the usually intelligent and personable corporate executives ready and willing to take the stand. Around 199 4 the American Law Institute (ALI ) completed a study on the law of corporate governance . The first draft o f this study represented a rather juvenile attempt t o put some teeth into stockholders' suits. Thereafter, ou r forme r partne r Jo e Hinsey, a professor a t the Harvard Busines s School, and other s got into th e act, and th e quality of the product ros e considerably. Unfortunately , th e amateuris h first draf t raise d suc h a ruckus that a committee was formed t o give a business community inpu t into the process. That committee took on a life of its own and continue d to press for change s in the wording long after th e initial problems were cured. Although, by and large, stockholder suit s are useless, and although, by and large , it is the duty of directors to direc t th e corporation , time s d o come when courts must be allowed to be brought in . Despite the carefu l drafting o f the ALI and th e blood spille d ove r the wording, in th e las t analysis real cases come down t o a "smell test"; you can' t keep the gat e closed fro m th e beginnin g (a s th e busines s grou p woul d lik e t o hav e done). A smell of wrongdoing requires inquiry to go forward. My guess is that the time spent by corporate counsel in trying to keep the gate closed exceeded the amount of time actually expended in defending such suits in the years involved. However, the final ALI product was first-rate. No on e ha s foun d satisfactor y settlemen t formulas . Th e gran t o f options to plaintiffs was almost always suggested by plaintiffs' counsel and almost always rejected by the corporation itself. No doubt, one of the reasons that n o corporat e board eve r wanted t o settle by granting stock options was that i n the course of settling the fe e for plaintiffs' counsel , the court might make a finding of the value of the options. The practice used to be, and may still be, although the SEC and the IRS have been inching up on the issue for years, that options granted to corporate manager s were treated a s having no ascertainabl e valu e at the time of issue and were hence nontaxable t o the employe e and with out significance t o the income statement o r the balance sheet of the corporation. Fro m m y vantage point a s trial counsel , the genera l counse l insulated m e from th e dut y of worrying abou t whethe r thi s involve d a

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conflict o f interest. Arguably, it did not because the ability to attract to p management by the grant of stock options was a proper consideration fo r outside directors to take into account, even though som e suspicious persons might point to the fact that they, too, in their own spheres, more often than no t wer e als o beneficiarie s o f th e system . I wil l b e intereste d t o observe what happens when, in the fullness o f time, the regulators require corporations to attach some value to management stock options at time of issue. Securities cases may then settle even more often than they do now. Trying unfounded claim s need not be either as risky or as expensive as is frequently claimed. I would prefer to see more courage and less effort t o get the Congress to remove the courts from supervisin g corporate loyalty and integrity.

7 A PRODUC T LIABILIT Y CAS

E

By the 1970 s my friends a t the trial bar knew I had handled a number of cases for U.S . Steel Corporation. Sometime in 197 4 Hazard Gillespi e of Davis Polk called me to ask if the corporation would extend the statute of limitations in a possible suit by Allis Chalmers for product liability. I told him we had not been retaine d with respect to any such suit and that h e should ask Gus Heatwole, Steel's general counsel. Although I told Hazard I would no t ac t a s his messenger, I did infor m Gu s about th e call . He responded, "If they want t o sue us, they had best do it now, and no t a t some time more convenient to them." In a couple of days Gus called me to report tha t U.S. Steel had been sued in New York State Court by Allis Chalmers and asked us to represent them. The product liabilit y suit involved the purchase by Allis Chalmers of some T-l stee l from Lukens , a product o n which U.S. Steel Corporatio n had a trademark an d whic h the y license d Luken s Stee l t o produc e i n return fo r a royalty. Gus said the product wa s difficult t o weld, particularly in plates over one inch thick. Allis Chalmers had ordered a lot of sixinch plates, which had attendant warning tags about potential difficultie s in welding. He would sen d the complaint alon g when h e got it, but h e didn't think much of the case. When the complaint came in, I called Sharon Grubin, who was then a third-year associate , and gave the case to her to handle by herself. If she needed any help or advice I would be available, but I saw no reason why she wouldn't en d up trying the case. I suggested she start discovery, and 123

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off sh e went, proud a s a peacock t o hav e a real case all her ow n i n th e rather male-dominated field of heavy manufacturing. Sharon starte d of f bravely, but fo r a time the case languished becaus e Allis Chalmers dragge d it s feet. At first the two defendants, Luken s an d ourselves, let each other alone. Lukens, unfortunately, ha d insurance covering them against product liability claims. I say "unfortunately" becaus e when we suggested to Lukens that we mount a joint defense and leave any possible issue s betwee n u s t o a futur e day , the y sai d the y ha d bee n instructed t o cross-clai m agains t us , asserting that th e fault wa s in th e chemistry and characteristics of the trademarked product, T-l. We would then have had to cross-claim back at them alleging that it was a wonderful product when i t was produced accordin g to our specifications , but the y had obviously botched th e production. Meanwhile, Allis Chalmers could sit back and atten d th e deposition s i n which thes e two knowledgeabl e steel companies produced evidenc e to support these two claims, both o f which Alli s coul d adopt . All they would hav e t o d o wa s to say , "Go i t mother, go it bear." We explained to Lukens that this was really not the way to run the lawsuit. Lukens's counsel said they had instruction s fro m thei r carrier , and they would ris k their insuranc e if they did not d o what the carrier tol d them to do. Sharon suggested maybe I should get into this argument with both fee t because she wasn't gettin g anywhere. She reminded m e of th e vouching-in of Merrill Lynch in the Douglas cases. We all traipsed down to Philadelphia to the impressive headquarters of one of the great insurance companies. We sat in the huge office of the general counsel and explaine d tha t we could quit e properly agre e between Lukens and U.S. Steel to postpone any and all claims because no cause of action between us would arise unless and until the plaintiff got an enforceable judgment agains t one or both o f us; until such time we could eac h reserve all rights against the other and would postpone any suits or discovery until the plaintiff prevailed , if ever. The general counsel's staff said in effect tha t it was company policy to enter all cross-claims promptly, and they saw no reason to vary from compan y policy in this case. "Well," I said, "I'm not here to discuss your company policy, which may, for reason s unbeknownst t o me, make sense in other lawsuits , but hea r me out on why it is not a good idea in this case." In words of one syllable,

A Product Liabilit y Cas e / 12 5

I explained the way preparation for trial worked in a product liability case of this kind and why it made no sense for us to spend the considerable talents, both lega l and metallurgical , on both sides , making the plaintiff s case for it. I don't think the general counsel had ever had the occasion to consider this aspect of the carrier's business before, but it did not take him very long to get the point. In order not to let his staff dow n too badly in front o f us, he repeated ou r positio n (indicatin g he had it ) an d sai d he would consider the matter with his staff an d his management an d let us know promptly of the insurance company's position. We had hardly gotten back to the office whe n he called to say he would follow our suggestion, adding in a kindly vein that he was having the whole defense strategy in product liabilit y cases reviewed. His company apparently learned it s lesson but, as a Special Master trying to settle cases in the Appellate Division, in the 1990 s I still come across carrier-represented defendant s wh o are sparring against one another t o the delight of plaintiffs. I have never seen two self-insured companie s do so. After a while, Allis Chalmer s go t it s customer , th e Tennesse e Valley Authority (TVA) , to do what its counsel, Hazard Gillespie , had been urging them to do all along—join wit h Allis in a suit against Lukens and U.S. Steel Corporation, blaming T-1 steel as the villain of the piece. The TVA claimed that its latest, huge hydroelectric project had been slowed up fo r years becaus e o f th e failur e o f a stay-rin g mad e fro m T- 1 steel . TVA claimed damages from this delay of more than eighty-one million dollars. Allis Chalmers claimed an additional seven million dollars. The TV A had bee n th e crow n jewe l o f th e Ne w Deal's effort s t o lif t poverty from th e back of the rural south. The statute gave TVA the right to sue anyone in the U.S. District Courts in Tennessee, and of course, the Constitution o f the United States entitled them to a jury trial. The introduction of the huge TVA claim and the jury demand presented U.S. Steel with a much more dangerous case. Hazard was sure that rather than face a jury trial in Chattanooga, Tennessee, the home of TVA, Lukens and U.S. Steel Corporation would settle. He did not count on the determination of Gus Heatwole. After the TVA filedin Tennessee, I asked Tom McGanney to get involved. He is a lawyer's lawyer: fair, meticulous, and a wordsmith of superb craftsmanship. Although not a jury spellbinder, Tom is so expert a lawyer that

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he usually keeps every iota of evidence out of the record against his client; if any gets in, it is thoroughly impeache d b y documents o r admission s from th e other party. Tom took on the TVA and encourage d Sharo n to continue to prepar e the case against Allis Chalmers. I was only generally familiar with the case until the autumn o f 1979 , when trial loomed near . Gus called me out t o Pittsburgh, along with Tom McGanney, and suggested rather gently that I become more involved in the case. I tried t o do so, and that i s how Kak and I ended up spending eight months in Chattanooga, Tennessee, among some of the nicest people we ever knew. TVA neede d a suppl y o f electricit y t o us e durin g period s o f pea k demand, but the demands for electricity in the huge section of the country supplied by TVA had long before exceeded the capacities of their original dams and power plants. They had constructe d atomi c power plant s using atomic fuel. To use any heat-driven machiner y as the accordion t o take up peak demand an d the n b e turned of f wastes energy, because i t always takes tim e an d energ y fo r hea t t o buil d u p enoug h t o produc e steam, and when shut down it cools off rapidly. The nature of the atomic reactor i s such that i t is particularly unsuitable fo r being turned o n an d off repeatedly. TVA decided t o build a lake on th e to p o f a hill, known a s Raccoo n Mountain, pump water up there using electricity that the atomic plant s kept producing eve n in slack periods, and let it descend to produce ne w electricity in peak periods. They decided to use a single pump-turbine t o do both the pumping of the water up and the generating of the electricity as it poured down. This had been done in Europe and elsewhere, although on a much smalle r scale . This rather elegan t solutio n lack s the redun dancy o f havin g on e turbin e ru n b y electricit y t o sen d wate r u p an d another run by water coming down to produce electricity. Allis Chalmers, together with TVA, designed and built the system. The pump-turbine consisted basically of two parts, an impeller that turned and a stay-ring insid e o f which th e water an d th e impelle r acte d upo n on e another. The stay-ring was a huge vessel, more than twelve feet in diameter and about ten feet tall. For hydraulic reasons I never fully understood, the stay-ring was not just a smooth pipe with an augur inside it but a rather complex series of chambers through whic h the descending water coul d

A Product Liability Case / 127

flow with maximum impac t upon th e impeller. The stay-ring channele d the water so it hit the cups on the impeller at the optimum angle. The huge vessel, a compact mass of welding, resembled the chambered nautilus. Many pieces of the stay-ring were made from T- l stee l as thick as six inches. Welding steel so as to make the weld as strong as the surroundin g metal i s a difficult task , which i s made mor e difficul t a s the stee l get s thicker. Th e grea t hea t i n thi s proces s expand s an d contract s th e sur rounding metal. Soft, malleable metal, ductile and flowing, readily accommodates expansio n an d contraction . Tougher, stronger, and less ductile metal can't readily expand and contract without pulling away from itself , causing cracks. Allis Chalmers chose T-l, a particularly tough, nonductile metal, for thi s stay-rin g becaus e i t woul d b e expose d da y after da y t o changing water pressure and to the vibration o f the high-speed rotatio n of the impeller. T-l stee l was difficult t o weld, and more so in thick sections. Welding a material en d t o en d (but t welding) i s relatively simple; as the materia l shrinks it simply pulls its length along the floor. The complex configura tion of the stay-ring caused further problems . A T-weld is more stressful . Think of an inverted T. When you set one piece of steel on top of another and wel d th e uprigh t t o th e fla t piece , the expansio n an d contractio n occurs in the middle of the flat piece. The stresses so set up remain in the steel after the weld and can cause cracks to occur many years later. It took a mass of intertwined T-welds to build the stay-ring. In order to avoid cracking problems, one can heat the whole unit afte r the welding so that the new unit grows softer while uniformly hot. In that soft condition, the stresses tend to reduce. They relax like the taut muscles of a tired advocate in a hot tub, a process known as stress-relieving. But if not don e correctly—either to o fast o r too slow—that proces s itself ma y cause cracking. Putting down an even two or three lines of welded metal along the joint of a T-weld where the curve of the weld material flattens ou t on the bottom piece also helps to reduce the stresses. They call that joint the toe of the weld, and the process of putting down the two or three extra passes is known as "buttering." Systematically hammerin g th e to e are a o f th e weld with a ball pee n hammer, o r "peening," can reduc e postwel d stress . By observing thes e

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practices time afte r tim e an d carefull y measurin g th e results, engineers have built up a series of safety codes, which instruct manufacturers i n the proper methods for every variety of metal, including every grade of steel. Statutes make some of these codes mandatory, although put together by a private group , the American Societ y of Mechanical Engineer s (ASME) . Others are specified i n contracts or by specifications. If the codes did not exist, one would hav e to mak e up one' s own because somebod y ha s t o decide o n th e metallurgical compositio n o f the welding rod , the exac t heat t o be used i n the welding process, and the n technique s t o preven t cracking. Allis Chalmers, in our view, had been unusually casual in all of this and had, moreover, deliberatel y disregarde d warnin g tag s on eac h piece of steel that specificall y warne d both agains t welding any T-l plate s mor e than three inches thick and against using T-welds in T-l steel . The plaintiffs pushed the federal case in Chattanooga, and Allis Chalmers dragged it s feet i n Ne w York. Since TVA had a right t o su e in it s ow n district, no court would have ordered a trial elsewhere or a delay so that a previously filed suit coul d g o first. Accordingly, trial i n Chattanoog a loomed nearer and nearer. By the time I got involved i n the case, I had t o play catch-up, not a n entirely new game for me. For three years at Harvard I had coasted along with a s little work as I could manage, certainly no Latin o r Greek . I did study writing unde r Theodor e Morriso n an d Davi d McCord an d eigh teenth-century English literature with Albert Guerard, Jr., and I did read a good bit, but we all drank too much. This lifestyle gav e rise to the necessity of learning an entire course in a few days before the exams. I still have nightmares of seeing the exam schedule posted and realizing that there is an exa m tomorro w i n a course I never onc e attended, d o no t hav e th e reading list for, and am not even sure from th e title what the subject is . It required quic k study, a skill that ha d ofte n serve d me well. As this case showed, however, a lawyer trying a factually comple x case before a jury needs a lot more. The defense tea m decide d I should cross-examin e th e plaintiffs' first expert. Patti Page, a young lawyer who had studie d th e welding in thi s case, spent the evening before th e expert's appearance working with me, and w e had a cross-examination worke d ou t tha t seeme d invincible . It

A Product Liabilit y Cas e / 12 9

relied, I thought, a little too muc h o n th e fac t tha t al l of th e crack s in th e steel radiate d ou t fro m bubble s o r othe r imperfection s i n th e welding . Although thi s was totally true an d we had beautifully polishe d sample s o f welds wit h bubble s an d resultin g cracks , which coul d b e see n unde r th e microscope, we didn't yet have bubble-free wel d samples from portion s o f stay-ring wher e ther e wer e butt welds . Kak had gon e u p t o Ne w Jerse y t o check u p o n m y mother , an d I , in orde r t o ge t t o slee p i n m y loneliness , had staye d u p drinkin g to o muc h to o late . If I was no t hun g over , I wa s certainly no t "i n th e zone. " The exper t though t imperfection s i n th e wel d were a normal fac t o f life . Not onl y that, but ever y time I sough t t o hav e the witnes s answe r m y questio n directly , th e judg e le t hi m slid e of f th e hook. I tried al l the technique s wit h whic h I was familia r i n dealin g wit h the evasive answer . Q. Woul d you please answer my last question? P L A I N T I F F ' S COUNSEL :

Objection . The witness gave the answer .

Q. Woul d the reporter please read the last question ? Counsel , i n thi s courtroo m I' m th e onl y on e t o giv e th e instruction t o the court reporter .

JUDGE:

Q. Woul d you r hono r pleas e as k th e reporte r t o rea d bac k th e las t question? Counsel , please ask another question . I don't lik e that metho d of proceeding.

JUDGE:

I repeate d a s nearl y a s possibl e m y las t question , t o whic h th e pur ported answe r was, in my judgment, n o answer . P L A I N T I F F ' S COUNSEL :

Objection . Tha t questio n ha s been asked an d

answered." Sustained . Counsel , I think thi s cros s is moving rathe r slowly . Perhaps you had better move on to a new subject .

JUDGE:

Judge Fran k W. Wilson throughou t al l this maintaine d a quiet, courte ous demeanor . Belove d b y th e loca l bar , h e treate d th e jur y wit h suc h courtesy an d directnes s tha t the y would hav e followed hi m t o th e end s o f the earth. The judge coul d no t be "tried" instead o f the case . I though t i t wa s n o plac e t o ge t int o matter s visibl e onl y unde r th e microscope, instea d pushin g throug h cross-examinatio n a s best I coul d

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by emphasizing the difficulty o f the honeycomb that mere mortals had to weld and the fact tha t no sales promotion piece s indicated tha t six-inc h steel plates were intended t o be welded at all. I showed that each piece of steel shipped by Lukens had a tag on it warning that it was not suitable for making T-welds. I ended by getting an admission from th e expert that he had not been shown such a tag by the party that called him. I was not at all satisfied wit h my performance; but if I was unsatisfied , Patti Page, who had expected a brilliant performance, and Sharon Grubin, who fel t responsibl e fo r th e case , were devastated . Sharo n calle d Ra y Hamilton, head o f the Litigation Department , an d aske d him t o com e down t o Chattanooga t o se e what shoul d be done. Ray came down an d read the cross-examination, which didn' t prov e too much bu t which h e didn't feel was all that bad either. We rearranged the witness-lawyer list in such a way as to let the younger lawyers do all the future cross-examina tion. I remained as head of the team. Tom McGanney did his part brilliantly. There was almost nothing lef t of the TVA case when he got through with it. One of the TVA witnesses said of the welding in the stay-ring, "If it were nuclear it would be junk." Tom firmly establishe d tha t TV A had warning s fro m U.S . Steel i n it s library and three warnings from Luken s in its files. Patti Page, in cross-examining one of the other experts, drew his attention to an important error, and he said, "You're right, Miss Patti," and then the words popped ou t o f his surprised mouth , not sarcasticall y but wit h genuine admiration, "as you always are." The jury loved it. Sharon, of course, was the best of all. Standing in the well of the court, looking very young with her white jabot, she appeared to be no match fo r the experienced engineers on the stand. They disdained her youth and fair countenance and did not see the sling in her hand. The plaintiff s calle d a n extremel y affirmativ e exper t whos e heav y Prussian accen t and manner obviousl y grated o n the jury. His testimony ended just before th e lunch break. At lunch we repaired a s we did ever y day to a private room at the Mountain Cit y Club about a block from th e courthouse. The Mountain Cit y Club, like much o f Chattanooga , kin d an d hos pitable, had rule s an d accommodation s ou t o f tune wit h 1980 . Ladies were not allowed to go from the private dining rooms on the second floor

A Product Liability Case / 131 to th e first floo r withou t bein g accompanie d b y a member. Th e clu b ha d graciously mad e m e a nonresiden t membe r and , i n theory , ever y tim e Sharon o r Patt i wanted t o us e th e facilitie s the y ha d t o as k m e t o accom pany them . We tried t o cu t corners , but th e clu b staf f mad e sur e w e fol lowed this rule . At lunch we planned strateg y for th e afternoon. Sharo n aske d us, "What would yo u thin k i f I starte d m y cros s thi s afternoo n wit h th e questio n c Mr. Expert, have you eve r been wrong?" ' We debated whethe r thi s woul d appear t o b e to o gli b o r fres h a question, decidin g tha t fo r thi s witness i t would be OK. So right afte r lunc h Sharo n began he r cross-examination . "Good afternoon , Mr . X. My nam e i s Sharo n Grubin . Hav e yo u eve r been wrong?" The witness gave an answe r which lasted a full tw o minutes , but th e final drif t wa s clearly, "No, I never have been wrong in any seriou s matter." The jury didn' t nee d t o hea r th e witness' s answer s t o an y o f th e questions tha t followed . Sharon's greates t triump h wa s th e cross-examinatio n o f th e Alli s Chalmers compan y representative , a witness wh o ha d bee n allowe d t o si t with Alli s Chalmers' s lawyer s a t th e plaintiffs ' counse l tabl e righ t i n fron t of the jury box. He sa t there s o he could directl y advise the lawyers on th e intricacies o f th e facts . Th e jury understoo d hi s rol e an d hi s importanc e to th e case . Sharon ha d ha d tw o separat e opportunitie s t o examin e hi m under oat h o n pretria l depositions , and o n tria l sh e controlle d hi m lik e a lion tamer wit h a chair . Q. Yo u jus t tol d u s tha t yo u wer e neve r advise d t o pee n th e toe s o f welds. Did I hear you clearly? A. Well , yes, that's generally what I said. Q. Tha t wasn't true, was it? A. Yes , it was true. Q. Woul d yo u tur n t o pag e 21 9 o f you r deposition . You recal l bein g examined on deposition ? A. Well , yes, I don't kno w tha t m y memory wa s accurat e the n a s it i s now. Q. Di d I ask you this question an d did you give me this answer? Q. Did anyone tell you about peening?

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A. Mr. Jones of U.S. Steel told me in a telephone conversation that it would be a good idea to peen before stress-relieving. Q. That answer wasn't true either, was it? A. Well , it was true in substance. Q. Did I ask you this question and did you give me this answer on page 255? Q. Did you have a telephone talk with Mr. Jones? A. No, I didn't, but I heard from someon e that Mr. Jones had said something like that in a phone conversation with someone. Despite the fact that Sharon did so well, Judge Wilson appeared impa tient a t the length o f the cross-examination. I told Sharo n i t was only a matter of time before the judge would, in his kindly but firm manner, ask her to finish up promptly. "When he does," I said, "don't you respond—let me." Sure enough, Judge Wilson said: "Counsel, you appear to be arguing with this witness and the cross is taking too much time . Just make your point and move on. You'll have to finish up this afternoon. " I had waited for this moment through mor e than four thousan d pages of transcript, since my own unsuccessfu l cross-examination . Tremblin g slightly at my own temerity, for I had no business interrupting, I arose. If Your Honor pleases , I have been trying cases in many courts fo r over thirty-fiv e year s an d I have sa t i n courtroom s an d listene d while others were trying cases . Never in al l that time , Your Honor , have I been i n a courtroom lik e this one where the witness i s not required to answer the question asked. Ms. Grubin has not, if I may respectfully s o state , been arguin g wit h th e witness , but sh e ha s been tryin g to ge t a straight answe r to her questions . Your Hono r has not require d an y witness, either o n direc t o r cross, to confin e the answe r t o th e questio n asked . I t i s thi s whic h make s cross examination lengthy . I respectfully reques t tha t yo u permi t Ms . Grubin t o continue her pertinent cross-examinatio n fo r a s long as it may take, and I respectfully sugges t that you require the witnes s to answe r th e questio n aske d an d no t voluntee r informatio n o r opinion.

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Judge Wilson, beloved for the equanimity of his temper, said: Mr. Fales, I, too, have been trying cases for many years, and in one of the early cases that I had as a judge, the Hoffa case , counsel asked me not t o interrup t th e witness o r cu t hi m of f becaus e his ramblin g answers conveyed to the jury better than any cross-examination th e slipperiness of his mind and character. I suggest to you that the jury is quite capabl e o f assessin g the truthfulness o f the witnesses, but you may conduct your trial as you see fit. Let's call the jury back and proceed. We had learned somethin g that eve n our local counsel did not kno w but which counsel for one other party clearly did. Witnesses in this courtroom need not be trained to answer only the question asked but could be used to volunteer information withou t rebuke from the court. On readin g thi s manuscript , Re x Taylor, m y Englis h lawye r friend , noted the impropriety of my butting in. All I could say was that: (1) it was necessary, (2) Judge Wilson would no t an d did not mind, and (3 ) if you smile nicely enough any judge will give you great latitude. I was reminded of a time when I was arguing a motion i n Justice Marty Stecher's robin g room. The motion involve d an injunction agains t our opponent' s takin g action on the alleged basis of inside information. The defense was that the inside information, whic h i t was acknowledged ha d been received , was locked awa y in a file cabinet. While this was being said with a little to o much elaboration , I looked a t th e justic e an d tappe d m y forehea d t o imply that the information i n there could not be so easily controlled. It wasn't har d t o see that h e got the point. The occasions when on e doe s these things have to be kept under the strictest control. As proper cross-examinatio n sometime s does , Sharon's examinatio n took a long time. The witness had notes of a phone conversatio n with a Mr. Smith of U.S. Steel Corporation. Sharo n had the notes blown u p so that the y filled a three-foot-by-five-foot whit e cardboard . Th e word s "honest to God" could be seen clearly across the room. My friend Richar d A. Givens thought this cross-examination was so good that he put it in his book Advocacy, the Art of Pleading a Cause. His version o f the inciden t goes like this:

134 / A Product Liability Case The following sequenc e concern s an operatio n tha t ca n be done durin g welding known as "peening." The T-1 licensor's literature recommende d that peening be done if the material were going to be stress-relieved, and X's notes showed that th e engineer ha d tol d him t o peen. On hi s direct , X had change d hi s testimony fro m hi s depositio n regardin g what thre e words in his handwriting note s said. X's direct testimony o n thi s was as follows: The engineer als o mentioned tha t we should be peening the toes of the welds. We had mentioned to him that we hadn't been too successful in doing this peening because of the high strength of the material. The material is difficult t o push around , and it is difficult t o contro l peening o n a structure i n the shop a s we have here. It is difficult t o control i t i n a laboratory s o tha t i t i s much mor e difficult , i f no t impossible, to be assured that you have the benefits o f peening an d not the damaging effects o f peening. In his direct testimon y the witness sai d that hi s handwritten note s said , "Do peening o n toe pass. Haven't too good. " On hi s direct he was asked "What doe s th e 'haven' t to o good ' relat e to? " and h e answered , "Th e engineer wa s recommending peenin g t o eliminat e cracking , and I ha d mentioned tha t we haven't to o goo d a success with peening this type of material." For cross-examination, Ms. Grubin ha d X's notes enlarged so that sh e could point to them as they stood at an easel in full view of the jury. The following occurre d i n the course of questioning X about what the engi neer ha d tol d hi m durin g th e phon e conversatio n t o which th e note s related: Ms. GRUBIN : An d in these notes, three times that ar e indicated by these notes he told you to peen the welds, is that correct, you said, "Do peening on toe pass." He said, "Highly restrained joints, recommend peening. " Near th e end , "Recommend peening. " And you never did any peening on these stay rings did you? A. H e told us three times in that particular conversation to do peening. No, we did not do peening and, as in this particular conversation the words that were confusing t o me during my deposition, I sat an d studie d thos e words. There were three words that wer e questionable as to what they meant. And earlier in this testimony I indicated tha t thos e three words, after i t is stated to peen o n th e toe pass, and those three words "Haven't to o good," success with

A Product Liability Case /135 that particula r peenin g operation . S o I tol d th e enginee r "W e haven't too good a success with peening." Peening is a process by which you impact the material to deform the material and cause it to plastically flow so that you reduce the residual stress. Q. Thes e three words, are those three words right here? A. That' s right. Q. "Haven' t too good"? A. That' s correct. Q. Mr . X, isn't it true that your company had never even attempted to peen T- 1 or an y other materia l of . its high strengt h leve l in an y project before, and I say that because that's what you said at Page 774 of your deposition? A. Tha t i s correct, however , I also sai d tha t w e had don e i t o n a n experimental basis at some time, and I stated— Q. [Interposing ] Ho w many years before? A. An d at that particula r tim e I said I didn't kno w when an d I still don't know when, but I know that D had that sam e opinion an d after reading some literature I find out that it was D who had done the peening, so this was back in the early—late fifties or early sixties, I don't know. Q. Mr . X, what document s ar e you referrin g t o when yo u sa y you went back and assumed that you had gone back and seen this? A. I don't recal l th e specifi c documen t righ t no w but I am sur e I could find it somewhere. Q. Whe n you told the engineer that you hadn't had too good success peening this steel, you were referring t o some experiment whic h you didn't know anything about except that you heard somebod y mention it and it took place in 1960 or 1961 or thereabouts, is that right? A. That' s correct. Q. Okay . Secondly, Mr. X, isn't it true that your notes represent onl y things that th e enginee r tol d you rathe r tha n anythin g you tol d him? A. No , Ma'am. Q. Le t me quote you from pag e 762 of your deposition. Question: Goin g down three lines you have written, "At 1100 T-1 has no ductility."

136 / A Product Liability Case Line 17. I

take it 1100 refers to degrees Fahrenheit?

Answer: Tha t is correct. Question: Wha t di d that mean t o you, the 110 0 degrees T-l ha s no ductility? Answer: Nothin g really. Question: Di d yo u discus s i t wit h th e enginee r o r i s i t jus t something that he said? Answer: H e was saying all these things an d I was jotting the m down as he was talking. Did I read that correctly, Mr. X? A. Yo u read that correctly . And those three words, when I reviewed these particular minute s o f the telephone conversation s a t tha t particular time, I did not decipher this "haven't too good." I stand corrected, that is my wording, not the engineer's. Q. An d at your deposition last November, I asked you with respect to these same notes—this is page 766, Mr. X. Question: Woul d you read the next line for us ? The best you can make out. Answer: Th e best I can make out is, "Honest to" something. Question: "Good " or "God"? Answer: Yes. You gave those answers? A. Yes . And at the time they were the best answers to the best of my recollection. Q. Yo u are recollecting what these words say, Mr. X? A. Th e bes t tha t I coul d rea d an d th e closes t t o tha t tha t I coul d come, and as you well know, even in a deposition, when I was trying to read that and trying to determine what was there, I did not know and it was the closest that I could come to it. Q. An d that was last November an d it was also the closest you could come two and a half years ago? A. Becaus e I didn't review that. Q. An d you said that thi s said, "Honest t o good," or "God," correct, both those times? A. Tha t is what I said both of those times, yes, ma'am.

A Product Liabilit y Cas e / 13 7

Q. Mr . X, let me ask you this: If this is, "Haven't too good," wouldn't "to" be spelled t-o-o? A. Whe n I am writing and taking notes, you will find short words, contracted words, capitals in some particular case like "good" is there, and it's not only "good." If you go down through, you will find man y other things like that in that book. I am trying to keep up with the conversation and I don't take shorthand, even though sometimes it almost looks like it. (pp. 210-12) All this time, the huge card sat on its easel with the words "Honest t o God" plainly visible. The jury had a field day. They laughed ou t loud as the witness got more and more tangled in his own web of lies. He looked slimy. Only Sharon's apparent vulnerability and her good manners mad e the contest seem a fair one. Countless steps went into making cross-examination see m so easy: study of the underlying manufacturing technique ; detailed study of the available manufacturing records before the depositions; careful examination by deposition with the shape of the trial in mind; restudy of the prior deposition s and records before an d after th e witness's direct; and preparation fo r th e actual cross-examination, including having the blow-up made during courtroom hours as soon as the direct testimony showed it might be useful. Of course, none of this would have helped without Sharon's study of her art, her brilliance, and her courage. Quick study never suffices for good trial work. When this witness left the stand, he did not return to the counsel table. He was not there the next day. In fact, he wasn't even in the courtroom . He did not return to the courtroom fo r two weeks, and then he sat in the back. At the end of a month, he resumed his place, but the jury found i t difficult t o look at him without smirking. The TVA trial dragged o n mont h afte r month . During this time, Kak and I came to know southern way s and hospitality, a change from Ne w York City. Kak was invaluable in Chattanooga, a community of wonderfu l people who seeme d a t first blush t o u s jaded Ne w Yorkers not t o hav e escaped from th e 1930s . Kak got to know our neighbors , which was not hard because they were so hospitable. If they met you once, they threw a party, and then everyone you met at the party did the same. They all loved the way Kak could turn a phrase. We have friends fro m Lookou t Moun -

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tain whom we see to this day. Through these kind, educated, and amusing people w e felt th e puls e o f th e place . Mrs. Gardenhire, th e wonderfu l deputy clerk who coul d pu t he r han d o n an y exhibit a t any time i n th e courtroom an d who generally anticipated which exhibit would be asked for next, had us to dinner. This mingling with court personnel would not be tolerated in a big city like New York, but in Chattanooga it was entirely acceptable. Of course, we were careful never to mention the case or any of the parties, or even the other lawyers. On on e occasion clos e to the end o f trial, an extraordinar y thin g di d occur. A young partner i n a firm representing another party stood up on Monday morning and said: Your Honor, I have an incident I feel that I should put on the record. It occurred on Saturday. That afternoon I drove to the public golf course in Lafayette i n the hope of picking up a game. I met Mr. X, alternate juror numbe r nine , and w e found tw o mor e fellow s an d playe d th e course. Nothin g imprope r happened , You r Honor , bu t I though t I should record the matter. Judge Wilson appeare d stunned . H e opened an d close d hi s mouth a couple o f times. Then h e said : "Oh, Mr. Lawyer, how could you ? Ho w could you? How could you? Mrs. Gardenhire, will you bring in the jury now?" That was all that was ever said on the record, and I believe no disciplinary or other formal action was ever taken. The TVA had been the savior of the region in the depression, but people tire d o f bein g grateful . Rate s rose , an d brownout s an d blackouts , though rare, did occur. Bills came twice. Bureaucrats didn't care. People in Chattanooga looke d o n th e TV A in 198 0 just a s people i n othe r citie s looked on their utilities. No magic remained. The only people who didn't seem to realize that worked for the TVA. After th e trial ha d bee n goin g for thre e o r fou r months , the genera l counsel for the TVA said he wanted to meet with us. After al l the preliminaries were over, he got his settlement offer dow n to three million dollars. I told him that if he thought his suit for one hundred million dollars was only worth thre e million h e ought t o have the grace to withdraw it bu t that I would communicate his offer t o the client as, of course, I was obligated to do.

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Gus Heatwole had courage rare in a general counsel. He knew that losing the case would sti r up many more lawsuits. He also knew that i n the relatively small world o f users of T-1 the word o f settlement would ge t around rapidly , and everyon e who ha d an y trouble woul d expec t U.S. Steel to bail them out. He did not regard settlement as a panacea. Gus got on th e phon e a s soo n a s m y nam e wa s spoken . "Yes , Hal, what' s th e word?" I told him of the conversation. "What do you think our chances are?" "Good," I said "and they must thin k so , too, or their offe r wouldn' t b e this low." "Well, do you think you can get the jury to come in with a defendant' s verdict?" "One of the jurors was overheard i n the hall the other da y talking t o another juror and he called one of the Davis Polk lawyers Asshole so and so.' Now to be sur e tha t wa s just afte r th e lawyer ha d mad e everybod y laugh by getting himself al l wrapped u p i n a hypothetical questio n tha t included 'if I buttered my toes,' but I think this jury is following th e case. There's only one juror wh o i s positively for th e TVA, and that' s the ol d lady, number five, who appears to be in love with the young man repre senting it. In the end, my guess is that they will go for a defendant's verdict at least for us . Lukens might ge t caught, and we are still reasonably con fident on damages. Our exposure is not immense." "OK, well let's tell them we're not interested," said Gus. I reported all this to Tom McGanney, who thought I was unduly casual, and I reported the result to the counsel for the TVA, who was apoplectic. "What, not even a counteroffer wa s authorized?" He was so mad. The trial went on into a spring of dogwood, redbuds, and all the wonderful wil d flowers in Reflection Riding , the park the Chambliss famil y had given the city. The Allis Chalmers lawyers did some things neither White & Case nor U.S. Steel would have thought of . They introduced a paper written abou t T-l claimin g that some warnings in it were brought on by an incident that had occurred in 1967.1 read all the previous material and found the identical paragraph i n a paper written ten years earlier. They took what was a nearly illegible copy of a letter we had turned ove r to them an d made it "more legible " b y inkin g i n som e o f th e word s tha t th e Xero x ha d

140 / A Product Liabilit y Cas e

obscured. The words and dates they inked in reflected their version of the facts. We sent out to Pittsburgh fo r the original, a carbon of a letter that had gone out fro m U.S . Steel. The faint carbo n prove d har d t o read , but i t made clear that the inked-in words in the document Allis Chalmers had put i n evidence were not i n the original. I asked permission t o give this original the same exhibit numbe r a s the document alread y in evidenc e with a little "a" so that i t would become, let us say, Exhibit 219a . Judge Wilson grante d th e request, adding that we could offe r th e exhibit bu t that it was not time for summation and I could not "make a speech." I stood up and said before the jury: "Your Honor, there was some question about Exhibit 219, which is a copy we supplied to Allis Chalmers with some inking in by them. I have here the original carbon from the files of U.S. Steel, which I ask to be marked as Exhibit 219a." Mrs. Gardenhire so marked it. "I offer tha t in evidence." "No objection." "Received in evidence." Not a single pejorative wor d fro m ou r side , but I looked dagger s of scorn a t Allis Chalmers's lawyer as I offered th e carbon; my hand shoo k with righteou s anger . The documen t wa s handed t o th e jury an d the y passed i t around. Juror numbe r fou r looke d a t it and the n a t me with a wild surmise. He got the point. At last, in July we began to get to the end. Our cas e and some rebuttal and counterrebutta l remained . Alli s Chalmer s ha d use d T- l t o mak e replacement stay-rings . The judge thought h e was going to be asked t o retry the case through the building of those. Allis Chalmers made the mistake of saying they did not do any peening on the replacement rings . We had documentar y proo f t o the contrary . Sharon go t permission t o pu t those record s in solel y to reflec t o n th e witness's credibility . It was the same plaintiffs representativ e witness, and his credibility was once more destroyed. He was reduced to saying that he had no responsibility for th e manufacture o f the stay-ring, only the design. As he had spent most of his time on the stand talking about manufacture, he was a total goner. We picked Neil Thomas, a White & Case alumnus and ou r Tennesse e counsel, to deliver our summation t o the jury. The TVA lead counsel, the

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young lawyer that caught the fancy of juror number five, did not sta y to argue for TVA . He claimed that regulation s i n that hideboun d govern ment agenc y required hi m to take his vacation before th e end of July or surrender it, and anyway, his wife and children came first, and besides, he had already paid for the place they were going to stay. His capable assistant could sum up just as well. She could and she did, but that was not a smart signal to send. I was even more encouraged when the judge went to deal with the alternates and to decide whether they should hear the summations or not. The jury had no t been informe d o f who would argu e for th e TVA, so I was delighted when juror number five said that her hip had been increasingl y bothering he r al l through th e tria l an d tha t sh e really couldn't si t an y longer. The judge excused her. It was my view that although the jury constantly hears instructions not to discuss the case among themselves until it is submitted t o them, and althoug h juries take such instructions seri ously, remarks like "asshole so and so" that pop out pretty well show the way the wind is blowing. After waitin g through si x months of testimony, she would have stayed for final argument and jury deliberation if she had thought there was any chance of having her man win. So it seemed to me, anyway, and so I reported to Gus. We prepped an d time d an d cause d poo r Neil to recit e his final twohour argument many times. It was good. Our tea m include d a lo t o f goo d lawyers , who wer e continuousl y briefing the court on points of law and preparing proposed jury charges. We made the mistake that so many large offices do , and which our opponents fortunately did , too: we overwhelmed th e court with papers. As a result, he wrote his own charge, as short and simple as he could make it. That wasn't very short because he submitted eigh t special-issue verdic t papers to the jury, each one with several questions. The basic issues were: 1. Negligenc e of Lukens, negligence of U.S. Steel, contributory negligence o f TVA , contributory negligenc e o f Allis Chalmers , an d assumption of risk by each of the latter two. 2. Misrepresentatio n by Lukens and U.S. Steel and, if so, reliance. 3. Breac h of warranty, express and implied. 4. Defectiv e product .

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Of course, with al l of these issues there were basic legal concepts like proximate caus e that had to be dealt with. Judge Wilson di d a masterfu l job. The process of submitting these numerous questions to the jury with a separate charge on each took up the better part of two weeks. The jury decisions came back in sealed envelopes, so we did not know the verdict until the last one was opened with the general verdict in it. The America n jur y i s a wonderfu l invention . N o cour t coul d hav e worked it s wa y throug h thi s six-mont h tria l recor d wit h ove r 1,10 0 exhibits in the time available between court sessions. Judge Wilson was the only federal judge in Chattanooga, and in order that justice not come to a halt in eastern Tennessee while our lengthy trial went on, he heard othe r matters from 4:00 P. M. to 6:00 P. M. and on Fridays when we did not sit. The jury, on the other hand, had paid rapt attentio n t o the trial for all this time with no distractions. The judge had allowed them to take notes. When the y wer e deliberatin g o n th e questio n o f whethe r Luken s ha d made misrepresentations t o the TVA, the jury asked for three exhibits by number, say 214, 425, and 867 . Not one of us at our counsel table recognized those numbers, and we had to look at our exhibit books to see what they were . The y wer e th e copie s o f Lukens' s warnin g letter s t o Alli s Chalmers, which had been found i n the files of the TVA! Now there were other copies of those exhibits in evidence, but the jury asked for the very ones in the files of the TVA. That was encouraging. The jury also asked for some clarification abou t contributory negligence when they were considering the negligence issue with regard to U.S. Steel. As Tom pointed out , that meant they had found negligenc e or they wouldn't have reached any question o f contributor y negligence . Th e agon y o f waiting , wit h m y assurances to the clien t ringin g i n m y ears, became s o intense that m y stomach started troubling me. At last, the jury came back with the last envelopes. The judge came in. "All rise," said Mrs. Gardenhire. "Has the jury reached its verdicts?" "We have, Your Honor." "How says the jury as to the claims of the TVA against Lukens?" "The jury finds that the TVA is not entitled to recover of Lukens " Same with Allis Chalmers against Lukens. Same with TVA against U.S. Steel.

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"How says the jury of the claims of Allis Chalmers against United States Steel Corporation?" "The jury finds that Allis Chalmers i s not entitle d t o recove r o f U.S. Steel Corporation. " Th e word s crashe d i n m y ears . It fel t lik e passin g under the Golden Gate Bridge at the end of the war. We could not thro w our hats in the air, but we were mighty glad. Allis Chalmers made a motion t o se t aside the verdict that the y were contributorily negligent . I assumed th e court would rul e on i t immedi ately and den y it. You don't upse t jury verdicts after lon g trials withou t some goo d excuse , and Allis Chalmers' s motion , thoug h the y mad e i t sound plausible, wasn't that good. Judge Wilson, with his usual calm, took the motion unde r advisemen t an d said that he would let us have his ruling tomorrow. Kak was waiting in the heat outsid e the courthous e read y to drive to New Jersey. I had to go out and tell her both kinds of news. We went back to our temporary office, an d I phoned Gus : "Take everybody to the best restaurant you can find in Chattanooga and buy them a good meal. They deserve it." We had a wonderful celebration . The next day, shortly after noon, Judge Wilson denied the Allis Chalmers motion. I reported to Gus and we took off fo r home . There have been n o furthe r lawsuit s involving T-l steel . Now Congres s i s making a Federal law to cove r al l product liability . I doubt tha t i t will discourage claim s as effectively a s trying them o n th e merits of the case. August has always been ou r tim e fo r bein g in Maine with th e children . Back from Chattanooga , we spent a day or two in Gladstone to cheer my mother, who had dearly missed Kak during the eight months of trial. She was delighted with our succes s and said that, of course, we should go on to Maine, but although she was cheerful an d funny, I could see how much it would mean to have Kak away for another month .

8 STOCKHOLDER SUIT S

A front-page cas e came along. I inherited from Oriso n the representation of the outside director s o f Exxon. They were accused o f failing i n thei r duty of care as directors when th e extent o f payments t o Italia n politi cians by the Exxo n subsidiar y i n Ital y came to light o n fron t page s of papers from Athens to Tokyo. Exxon's bylaws permitted any committee of three director s t o b e delegate d ful l powe r b y the boar d t o ac t fo r th e board i n a discree t matter . A litigation committe e wit h independen t counsel advised that it was not in Exxon's best interest to pursue its outside directors in face o f a paucity of evidence that they should o r coul d have known anythin g about those payments. The insider director s were also exonerated. We won the resulting lawsuit on summary judgment. Now it was Lockheed wh o was getting i n the new s for payment s i n Japan. The SEC publicly announced that illegal foreign payment s constituted materia l informatio n whos e releas e wa s mandator y becaus e investors had a right to know that some, at least, of the sales of the company reste d upo n wha t th e SE C called " a shak y foundatio n o f illega l bribes." A young partner of Arthur Young, the firm that was auditing the Lockheed account , had foun d evidenc e of the payments. They publicly reported th e fact o f the payments. Lockheed desperatel y wanted, however, to keep the details out of the public eye. Some high-ranking Japanese politicians had been bribed. Lockheed retaine d forme r secretar y of state Bill Rogers and his law firm, Rogers and Wells, to protect their interests. Rogers insisted that if all the facts came out, not only would certai n Japanese politicians lose their jobs, but some might lose their lives as well. 144

Stockholder Suit s / 14 5

Three different group s competed t o get the information, tw o separat e Senate committees an d the SEC. They each had subpoena powers. Since Lockheed was powerfully represented , all three decided simultaneously to subpoena the auditors who not only had the facts, but had them al l filed and ticketed for easy reference. Unlike the position given to lawyers, auditors' clients do not have, in many states, an automatic privilege. The SEC and others see auditors as representing the investing public, not the companies they audit. Nevertheless, many states have by statute create d o n behalf o f those audited a privilege for informatio n reveale d to auditors . Everybody ha s th e gu t feelin g tha t althoug h auditor s mus t revea l th e figures and make certain comment s in their notes, they have no business to broadcas t irrelevan t informatio n tha t the y ma y come acros s i n th e scope of the audit . Auditors compet e fo r business . If my auditor note s something about m y private life that i s not absolutel y required by law, I am likel y to g o t o anothe r auditor . Th e Arthur Youn g firm wante d t o enhance as much a s possible the company-auditor privileg e in general , and it wanted to accommodate its client Lockheed to the extent permitted by law. The Senat e Bankin g Committe e insiste d th e loudes t o n gettin g th e materials. They had public hearings scheduled within a week, and the y badly wanted the papers. Bill Rogers persuaded the m tha t he would pu t up a good enough fight and had enough friends t o postpone the hearing. When he was attorney general at the end of the Eisenhower administra tion, th e pres s dubbe d Roger s "the mos t decen t ma n i n Washington. " Moreover, he had served as chief counsel to the Senate Investigating Committee and knew his way around the Hill. So they went after Arthur Young. We prepared a long memorandum o n the company-audito r privileg e an d th e nineteen state s in which i t was effective, and we negotiated with the chairman of the committee and with the minority and majority staf f counsel . The latter two worked hand i n glove; they did the good-cop, bad-cop act like real pros. Bill Rogers stayed out o f these negotiations, although we told him what was going on an d kept him filled in o n a twice-daily basis. We finally worked a deal with staff counse l that the Arthur Young files on the Lockheed "questionabl e payments" would be shipped to our Washington office t o be held there in a conference room , and representatives o f the committee coul d com e to

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our offices, inspect the files, and make longhand notes of the documents. This compromise seeme d to be about the best anyone could expect, and Rogers approved of it. I called Washington an d talked to one of my partners. Perhaps I did no t mak e myself clea r about just what th e arrange ment was . In an y event, I called a t five o'clock tha t afternoo n t o se e if papers had arrive d an d were being set up for inspectio n th e next morn ing. My partner tol d me that without openin g any boxes he had bundle d them off to the Capitol, addressed to the counsel for the committee. "You what?" "I didn't even break the seals. I sent them to the committee and nobody can accuse us of tampering with them." The mistake wa s too gros s to argu e about . I think m y partner mus t have been concentratin g o n readin g a corporate indentur e whil e I was telling him about setting up a room where the documents could be examined. Anyway, I called good-cop staff counsel immediately and told him to ship the document s back so as to carr y out ou r solem n agreement . H e made noises that sounde d lik e acquiescence, but fifteen minutes later he called back to say that th e materials had been signe d fo r an d logged in . They were now , he insisted , th e officia l propert y o f th e Senat e o f th e United States. "Horsefeathers," I said. "Some uniformed guar d signe d for them . You can sign for their dispatch to White & Case to carry out the agreement of a Senate committee. The chairman would be most distresse d to have his commitment dishonored. " Nothing I said change d th e situation , but I made such a fuss the chairman agreed I could appear before the full com mittee in their conferenc e roo m i n the morning. By 9:00 A . M. I was outside the conference roo m doo r fo r a 9:15 A.M . appointment. So , indeed, were al l the principa l bankin g lawyer s i n Ne w York. I recognized Ro y Haberkorn of Milbank, who represented Chase, Boris Berkowitz, the general counse l o f Morgan , an d som e others . They had, eve n late r i n th e evening than I, been given an audience on some problem that took precedence over mine. At 9:15 A.M . they went to the chamber an d remaine d until after 12 . Somewhat shake n by the unexpected wait, I entered the chamber an d was told that it was a busy day and that I had a few moments to presen t my business. With all the humility and eloquence I could muster, I spoke

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of the honor of the Senate and how I expected them to live up to an agreement mad e i n good faith , which a momentary laps e had imperile d bu t which ha d bee n caugh t befor e th e boxe s ha d eve n bee n opened . Th e counsel declined to recall whether th e boxes were opened before o r afte r my telephone call. The reception I got reminded me of Tax Commissioner Long of Massachusetts an d his reply to the executor o f a New York lady who owne d a Massachusetts beac h hous e no t habitabl e fo r mor e tha n three months a year and who had died and been buried there. "Well, we got her here now, don't we?" There was not muc h I could do . No one in the Senate could overrul e the committee. No written agreemen t ha d been made , and i f the agreement was so nebulous that I couldn't eve n make it clear to my own part ner, I didn't se e much chanc e o f getting a court t o begin tryin g to give orders to a coordinate branch o f government, thereby stirring up vexed issues of the separation of powers. While I was in Washington on this trip, I went to the archives and looked at the first printed Constitution. Article I, Section 1 , begins with the words: "All legislative powers herein granted." You don't have to have read the Federalist papers to know that the framer s took separation seriously. I coul d d o nothin g bu t repor t t o Bil l Roger s an d Davi d James , th e Arthur Young partner to whom I had been reporting, about our blooper. I don't think Rogers to this day believes what happened. At the opening of the public Senate committee session, I again made a pitch for the company-auditor privilege , in the course of which I emphasized that Arthur Young had nothin g to hide. I praised the partner wh o had uncovered th e trail of the payments an d sai d he was the hero of the affair; i t was he who first had th e courage to surface th e whole matter. I was, as I expected, overruled, and the partner went ahead to testify clearly and well , describin g th e magnitud e o f th e proble m ("The y shippe d Bekins boxes of Japanese cash from Dea k Perera to Tokyo.") without get ting int o detail s abou t t o who m i t wa s delivere d a t th e othe r end . H e described th e mots couverts used t o disguis e the operation. The Senat e committee was pleased with the testimony an d used almos t none of the papers delivered to refresh th e partner's recollection or to grab headlines. Bekins was the biggest mover of household goods on the West Coast and the image of Bekins boxes got plenty of media attention.

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At the end of the testimony, the chair graciously praised White & Case for its vigorous efforts o n behalf of its clients as well as the lack of disruption of the inquiry. He said I had behaved most professionally. Nevertheless, I was terrified tha t Lockheed would be so angry over the mix-up o n the work papers that Arthur Young would lose the account, White & Case would be blamed, and David James would be mad at me. When I did call David to report how the testimony went and how well his young partner had done, he seemed upbeat. I started to apologize fo r the error, when he said, "I saw you on television. That was great; you said to all the world that ou r partne r was the hero o f the affair." Bette r to be lucky. Some say, however, that Davi d James was merely being polite and that he spoke more acerbic words on other occasions. After I conferred wit h Bill Rogers, we were both summone d t o appea r before Stanle y Sporki n t o discus s ou r recalcitranc e i n no t havin g ye t turned the papers over to him. Bill Rogers did his best about the danger to U. S. international relation s an d the possibility of people getting killed. Stanley was unmoved bu t sa w how firm Roger s was, and h e knew th e company was fighting for its life. The SEC and private parties had already sued Lockheed fo r havin g "concealed" the questionable payments for s o long. He didn't hav e much mor e leverage against them. So he turned t o me. He wanted th e papers the next day. I said, "They are really not ou r facts; they belong to Arthur Young's customer, Lockheed. You are unfair to ask us to risk breaking confidentiality law s in nineteen states . You have subpoena power. Issue a subpoena an d seek to enforce i t in court. If the court agrees with you, we will obey a final court order." Stanley retorted, "But that's not how I will proceed. If you don't tur n those papers over, I will sue White & Case along with Lockheed for con cealing the payments." "That's a suit you won't win." "What do I care about that? Abe Pomerantz and every plaintiffs secu rity lawyer will piggyback on my suit, sue you, too, and you'll be tied up in depositions for the next fiveyears." "That's abuse of process." "Well, it won't com e to that," said Stanley , turning al l sweetness an d light. "The privilege is not Arthur Young's but Lockheed's. Furthermore, as you have so ably pointed out, it is they and not you who have the fact s

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to allege why it is so vital to invoke their privilege if, in fact, there be one. What you will do is give them notice of my formal deman d and notice in writing that i f they don't mov e in court t o protect tha t privileg e within the ten day s you hav e to respond , you will turn ove r the papers t o th e SEC." I looked at Bill Rogers. Stanley had him. After talkin g it over with those concerned, I wrote such a letter. Rogers and Wells made no such motion, and te n day s later we surrendered th e papers to the SEC. Eventually, all the facts cam e out. The prime ministe r of Japan resigne d i n disgrace , and som e other disagreeabl e things happened, but the world did not com e apart. Lockheed remained a client of Arthur Young. Indeed, life went on for me, too. I returned to trying an interrupted tax case and soon found mysel f on vacation i n Maine cruising with Kak and our daughter Priscilla. While I was on board Haven, our family sailboat, Gus Heatwole got me on a secure phon e an d tol d m e U.S . Steel was thinking o f makin g a n agreement t o take over Marathon Oi l Company, which was resisting an unwanted bid from Mobil . "We are considering using Goldman Sach s as our investment bankers, and we need help from White & Case right now," he told me. "Gus, we would, I know, be comfortable wit h Goldma n Sachs . I will have to check on possible conflicts with Marathon, but I don't believe we have any, and I'll try to get a team together before the afternoon i s over." "Good," said Gus, "I'd like to have our plane leave Newark at 5 P.M. with your guys, Goldman Sachs, and some of our folks on board." "I'll do my best." Fortunately, I was able to get Jack McNally right away. He was enthusiasti c abou t Goldma n Sachs , checked fo r conflicts , an d agreed t o work with Gu s on gettin g a White & Case team aboar d U . S. Steel's plane by 5 P.M. I called Gus back and told him White & Case was ready to serve and suggested he call Jack McNally directly. Gus agreed that I should sta y close to the phone but didn' t nee d to get to Pittsburgh o r New York for the time being. Jack and his team went ou t to Pittsburgh an d helped work up a proposed contract between U. S. Steel Corporation and Marathon Oil Corporation. Unfortunately, th e investment bankers recommended a couple of provisions in the term shee t that sough t to "lock up" the deal. The most

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obvious of these was a provision requirin g that eve n if the deal fell apart , Marathon Oi l would sell its most spectacular oi l field to U.S. Steel. White & Case had bee n o n recor d i n anothe r cas e a s opposing thes e kin d o f "lockup" provisions because their legality was dubious. The business justification from the point of view of Marathon's directors was questionable. No sooner was the proposed contrac t announce d tha n Mobil Oil Corporation, the other suitor , sued to enjoin Maratho n an d U. S. Steel fro m completing the proposed transaction . This led to two major lawsuit s at which we were largely spectators. The first suit was already under way in Cleveland b y Marathon agains t Mobi l o n th e groun d tha t a propose d takeover by Mobil would forc e Maratho n t o break the antitrust law s by tending to lessen competitio n i n some lines of commerce i n some sections o f th e country . A temporary injunctio n ha d bee n issue d agains t Mobil. U.S. Steel was characterized by the investment bankers as "a white knight" for making a friendly counterbid . Some cases raise the question whethe r managemen t o f a target com pany has standing to oppose a proposed takeover on antitrust grounds . I always thought at least two good reasons favored granting standing to the target. First, directors of a company ought to be able to say in good faith , "We think this takeover involve s a breach o f law, and we were elected t o make sure, among other things , that ou r transaction s don' t violate th e law." Second, an illegal takeover could, in theory, be set aside many years later, as the Du Pont takeover of a significant shar e of General Motors had been. If this happened within a few years of the takeover, the courts could require the return o f the damaged bride to her former shareholder s a t a considerable loss, either immediate o r potential. Those two possibilitie s ought to be enough to require (not only permit) the directors to consider opposing a takeover that might violate the antitrust law. The other suit took place before Judg e Joseph P. Kinneary of the Middle District of Ohio in Columbus. It involved a challenge by Mobil to the "lockup" provisions o f th e U . S. Steel-Marathon contract . W e felt w e could no t appea r o f recor d fo r th e goo d reaso n tha t an y decen t researcher coul d find memorand a w e ha d submitte d t o othe r court s arguing that suc h lockups were not justifiable. Loca l counsel, therefore , carried the ball on these issues and did well. We sat in court but di d no t appear of record.

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Judge Kinneary felt tha t i t was disrespectful t o his court t o appear i n anything but a pure white shirt. Some of us, knowing of our minor roles, had brought less formal shirt s to Columbus. We replaced them, and I still have some of the "Kinneary colored shirts" I bought in Columbus. The hearing put the CEO of Mobil on the stand examined by his counsel, Jac k Elam , sometim e presiden t o f th e America n Colleg e o f Tria l Lawyers. Both, distinguished as they were, looked like characters from th e movies of the thirties. One of our opposing counsel said to me, "Hal, last time we were opposed I was representing Mickey Mouse." "Yes," I said, "and no w you ar e representing W. C. Fields and Micke y Rooney." He laughed, for the characterizations were apt. Tavouleras o f Mobil di d no t enjo y m y barely concealed amusement . Judge Kinneary, however, did not take long to find the lockup provision s illegal and enjoined ou r deal from goin g forward. Gus Heatwole was wise enough t o advis e restructurin g th e dea l without thos e provision s an d republishing the offer fo r the Marathon shares. In the meantime the antitrust suit against Mobil's offer flourished. We me t i n th e office s o f Whit e & Case a t 1 4 Wall Stree t an d go t together U . S. Steel Corporation's ne w tender offe r fo r Maratho n shares . We shipped th e various, complex pieces of paper comprisin g th e pro posal up to Marathon's board of directors, who met late into the night to consider them. Dick Cheney of Hill & Knowlton prepared the advertisement containing the actual words of the offer t o the shareholders, which would appear in the next morning's issues of the New York Times and the Wall Street Journal. We reserved the full pag e necessary for this message; but becaus e th e term s wer e no t agree d upo n betwee n th e board s o f directors unti l th e predawn hours , the morning paper s carrie d a blank page. The next day, after th e parties reached a full agreement, the lawyers got the papers drawn, the tender offer wa s made, and U. S. Steel Corporatio n became, at the expiration o f the tender offer , th e owner of Marathon Oi l Company. White & Case had fought i n takeover battles from earl y on in the practice. We represented B . F. Goodrich, fo r example , in a long, successfu l struggle agains t bein g absorbe d b y Northwest Industries . We did tha t work mainly for companie s that were takeover targets and then onl y fo r

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regular clients . Despite the fact tha t Jac k McNally, David Hartfield, an d others developed a reputation an d a feel in this area, our restrictin g our selves to regular clients left room for others to grow up in the field. We had a tendency to regard our ow n advice as more sound than tha t of the newcomers, but on e lawyer, Joe Flom, developed a reputation second to none. Soon clients tried to have him on retainer so that he wouldn't sho w up o n the other side . His firm, Skadden Arps, had n o proble m working onl y wit h existin g client s becaus e s o man y wer e willin g t o become clients to be sure of having Joe on their side. It seemed to some that Skadde n focuse d mor e o n making sure a deal went through, whether or not it was wanted by the elected directors of the client, than o n ensuring that the course chosen by those representative s would prevail. This view was strengthened by Skadden's inventing a large number o f defensive maneuver s and then giving pejorative nickname s to each. "Poison-pill," "scorched earth," and "lockup" were household words in the late 1970s and all through the 1980s . "White knight" was an honorable name for a company that would ensure that a deal closed. No doub t Skadde n usuall y succeeded i n gettin g the highest possibl e price for the target company, but Skadden publicly argued that no grou p of directors could properly discharge their dutie s if they rejected a price for thei r targe t company' s share s that was substantially higher than th e market; all the maneuvering was designed to achieve this. A book-length portrai t o f Skadde n tha t quote d Pete r Mullen , thei r executive partner, as saying, "We like to think of our client as Wall Street," further enhance d this view. The "street" to many cynics meant the investment banker s wh o ge t a fee onl y i f the y complet e a transaction. Th e agreements tha t targe t companie s signe d wit h th e mortgag e banker s retained t o represen t thei r interests , which typically called for paymen t only if the deal went through, were written by the bankers. They usually contained a clause providing for a premium depending on the payment of a price above the first offer. Some skeptics further sai d that if Marty Lipton had not come along, Joe Flom would hav e had t o inven t him . Wachtel Lipto n was the opposin g counsel in a great number o f takeover battles. Some saw these battles as charades in which each side beat the other with bladders until someone fell down, someone declared victory, and a deal went through—obviously, an

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exaggeration. O n on e dea l tha t I worked on , Marty Lipto n helpe d hi s client prevent any transaction from happening . Of course, the acquisition of Marathon di d not quite end the matter. A number o f unresolved issue s went to trial in courts in New York, in th e Ohio state courts, and in the U. S. District Court for the Southern Distric t of Ohio in Cincinnati. I worked onl y on the Cincinnati lawsuits, a series of class actions brought o n behalf o f various group s o f stockholders o f Marathon, al l of whom claime d the y shoul d hav e been pai d mor e fo r their shares of stock. When Marathon looked as though it might someday be "put in play," its investment bankers advise d it to have in the files document s that woul d give them ground s fo r claimin g that an y offer tha t cam e their wa y was "grossly inadequate." They worked up asset appraisals wildly inflating th e value of each Marathon property. The U.S. Steel-Marathon merge r was a two-stage deal . U.S. Steel firs t acquired enoug h share s of Marathon t o accomplish a statutory merge r under Ohio law. In a statutory merger, the majority o f the stockholders of a company can vote to call in the minority shares. Their call price must be fair, and the statutory mergees have a right to an appraisal of the value of their shares enforceable in an Ohio court. The SEC regulations abou t the disclosures in a statutory merger diffe r from those pertaining to a tender offer. In the latter, it might well subject a company to liability to reveal any misleading information. I n the former , any outside "appraisal o f assets" was specifically require d t o be revealed , misleading or not. The merger documents , therefore, made reference t o the exaggerate d appraisals , which had no t bee n mentione d before . Th e plaintiff stockholde r ba r spran g int o action , an d derivativ e suit s wer e brought o n behalf o f numerous group s of Marathon shareholders : those who had sold into the tender offer o n its first presentation; those who had waited t o b e merge d out ; an d variou s classe s i n between . Deposition s were taken, and unsuccessful effort s were made to enjoin th e merger. The numerous and various cases were consolidated in Cincinnati, Ohio, before Judg e Carl B . Rubin. To m McGanne y handle d th e complicate d issues involved in the consolidation. He also worked with Rick Holwell on the securitie s la w issues, which, notwithstandin g m y simplisti c overal l characterization in this chapter, were very complex and sophisticated.

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In any lawsuit of this kind, individuals testify at depositions before trial, and being human, they utter words that d o not fal l neatly into the legal pigeonholes the counsel might wish. This happens despite our American view that i t is perfectly prope r t o educat e witnesses i n th e meanin g o f legal words of art and to get them to give truthful testimony . They can be reminded of the pitfalls involved in the fact that the colloquial expressions in which they sometimes think may have untoward consequence s whe n viewed in the technical terms of regulations and court decisions. A certain amount o f this is inevitable and, in my view, not troublesome to court or jury, particularly if one has a long enough trial for the jury to get to know the cast of characters and have a feel for who is trustworthy. The parties produced volume s of paper before trial , but within a reasonable time Judge Rubin se t a trial date for th e central classes of plaintiffs. We called the trial Radol v. Thomas after on e of the actions. Radol, a random shareholde r plaintiff , hel d a smal l numbe r o f shares . W . B. Thomas, the vice chairman of U.S. Steel, its principal financial officer, had replaced Bob Tyson. I had had Bruce Thomas as an important witness in a Venezuela tax case and, as many other witnesses had done , he had spen t the evening before taking the stand at dinner with Kak and me, discussing things other than his testimony and absorbing the optimum amount , in my judgment, of food an d drin k fo r a good night's sleep, untroubled b y nightmares o f trippin g u p o n word s o f art . H e ha d becom e a friend . Chuck Corry, of course, I had known since my first U. S. Steel tax case, and Dave Roderick I had com e to know through th e Busines s Roundtable , Roger Blough , and th e preliminary skirmishe s i n this case . Also, I had been presen t a t the Stee l board meetin g approvin g the tender offe r an d had sensibly remained totally silent. In preparing for the trial of Radol, we assembled two mock juries an d put o n minitrials before the m i n a specially designed facilit y tha t had a mock courtroom visibl e to spectators through a one-way reflective glas s panel. After the lawyers had put on their case and had withdrawn, we could watch an d listen to the "jury" deliberations. Cincinnati i s a conservative city, as the fuss abou t the Mapplethorpe sho w there aptly demonstrated . We presented the case to the "jury" as though the "plaintiffs" who appeared before the m were the only ones involved, and s o the sums at stake were reasonably modes t compare d wit h th e billion s bein g claime d b y th e

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classes. The California teachers' pension fund, however, was a plaintiff, and they owned enough shares to make it look like a real federal case. It was a revelation fo r u s to hear on e of the mock jurors say , "I thin k this is one of those stupid clas s actions where the plaintiffs' lawye r is the instigator of the whole thing." Both "juries" before whom we did the minitrial came in with verdicts in favor o f the defendants! The real trial went even better. One of the directors of Marathon wa s Neil Armstrong, the astronaut , who was a goodlooking local hero as well as a well-balanced and articulate witness for the defense. Mel Weiss, the plaintiffs' lea d counsel, sported a dark beard tha t made him loo k like an operati c Mephistopheles. Chuck Corry, the onl y U.S. Stee l Corporatio n office r t o hav e see n th e investment-banker inspired Maratho n documents , mad e a believabl e witness . Th e asse t appraisal was, however, a concrete document , and i f any part o f it were true, the stockholders of Marathon were hornswoggled. The payment to merged shareholders, in bonds issued by the acquiring subsidiary and guaranteed by U. S. Steel, which bore the interest rate of 12 percent, cause d u s mor e difficulties . Jus t afte r th e acquisitio n wen t through, the Federal Reserve, in a heroic effort t o curb inflation, had sent the prime rate to above 16 percent; the bonds, of course, had fallen below par. They stayed there for "a reasonable time after th e merger," so that the only testimony the judge would allo w in about their value was that the y were at that time worth substantially less than a hundred cents on the dollar. We did manage to get into evidenc e the fact tha t interes t rate s nor mally fluctuate an d the price of debt securities fluctuates with them. The bonds sold well above par at the time of trial, but the judge excluded that fact from the record; of course, the jury was properly instructed to confin e its deliberations to the facts i n evidence. The judge did not sequeste r th e jury, and right across the street from th e courthouse a bank was advertising reduced rate s for home mortgages, and people were lined up aroun d the block to await the bank's morning opening. What notice of this, if any, the jury took, we'll never know. Judge Rubin, unlike Judge Wilson, didn't like a long case clogging his calendar, and he made continuous efforts t o settle the case, calling us into chambers for that purpose a t least once a day. My authority to settle was low, and the plaintiffs' ide a of the value of their cas e was high. I hadn't

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gone above ten million dollars , and the y hadn't com e below fifty, so we didn't make much progress toward settlement . One afternoon th e judge asked everyone to leave his chambers but me. "You seem pretty cocky about your case. Do you know what the damages could be?" "Well," I said, "that's one of the problems the plaintiffs have . The way they are trying th e cas e they are goin g for si x billion dollars . Now th e 'asset surveys' have been a matter of public record for many months, and the stock of U. S. Steel didn't go up when they were 'discovered' and hasn't gone up since . No one is going to sustain a verdict in the billions in th e face of those facts. You would have to grant a motion to set aside a verdict as excessive if the jury came back with a verdict that translated into those kinds of dollars." "Well, I wouldn't set aside a verdict for one billion." "You might not," I countered, "but the Sixth Circuit would." "And what would happen t o your shareholders in the meantime? You have the opportunity to get out of this case for something below fifty million dollars and you are risking the loss of a billion. Fifty million dollars is pretty cheap insurance." "It still sounds like a lot of money to me. I have to work weeks to make that kind of money," I quipped. Judge Rubin was in no mood t o be lighthearted. He rounded o n me . "What do you think is your chance of getting a favorable jury verdict?" I had played this game many times before, so I knew what was coming. You sound sill y if you sa y 99 percent, an d i f you sa y less, the number s sound large. "Oh, I guess about 85 percent," I said. "Well, that leaves a 15 percent exposure. Do you know what 1 5 percent of a billion dollars is?" "I do, Your Honor." "Well, what is it?" "One hundred and fifty million dollars." "That make s less than fifty million dollar s look pretty good o n you r own figures." "Well, Your Honor, I've tried a few cases for this client, and I know their thinking pretty well. They don't like to pay tribute, and when the odds of

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a verdict are as high as 85 percent, they don't like to settle at all. They prefer to take their chances . It is only out o f respect for you and your cour t that they have offered ten. " "Well, you go out there and tell your clients what I've said and tell them that I would recommend their settling for fifty million." "I always report t o clients on settlemen t conference s o r offers, " I said, with a "don't tell me how to practice law" edge to my voice. So Gus an d Dav e an d I caucused i n a corner o f th e courthous e an d reviewed the bidding. We agreed that I should go to fourteen millio n dollars because the future cost s of going all the way to the Supreme Cour t might run pretty high, and somewhere around ten to twelve million wasn't improvident t o pay for insurance . Besides, Mel and his cocounsel shoul d be satisfie d wit h aroun d a four-million-dollar fee , which i s what the y would probably get for that kind of recovery. So, I went back to the chambers and told Judge Rubin that I had a new figure, whic h I would reveal if he brought everyon e back in. I announced the fourteen millio n an d told them i t was all there was going to be, and the plaintiffs, under Judge Rubin's pressure, came down to twenty. He was sure the gap would close, and so was Mel. But U. S. Steel had made its last concession and did not budge. This delighted me. If you are going to settle, you ought to do it early and not after tim e and money has been spent on trying a case. I felt pretty good about our record in this case and about the look of the jury. I felt that, like the mock jurors, they weren't the kind to be sympathetic to a class action. The trial continued. On e of the surprises i n this case was the effect o f advanced technology. We would type up the draft o f a memorandum t o the court on our afternoon retur n to the office. This draft would come out on a wor d processo r i n ou r Ne w Yor k offices . The y woul d perfec t i t overnight, and i t would awai t us in the morning, fully typed , with al l of the cases checked and listed in alphabetical orde r by circuit. The Cincin nati staff would have it photocopied, and we could arrive in court befor e 9:30 A.M. with a perfect piece of legal work in enough copies for the court, opposing counsel, and ourselves. At the openin g o f ever y session Judg e Rubi n trotte d int o th e court room, lifted hi s robe to run up the steps to the bench, flicked it aside, and sat down, all in on e jaunty motion , designed , we thought, t o quie t th e

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rumor tha t his heart conditio n was deteriorating. Dick Reinthaler di d a brilliant job with our expert , whose testimony dealt with both the merits of the case and damages. Many lawyers believe it is a sign of weakness to discuss damages before a jury if you really believe you have a good defens e o n the merits. They think, foolishly, that it looks brave to rise above even discussing them. We had trie d tha t wa y back i n Keifer-Stewart v. Seagrams in th e lat e 1940s; in that cas e the jury brought i n a million-dollar verdic t o n wha t was a multi-thousand-dollar cas e that we were sure would go our way on appeal. The Supreme Cour t o f the United State s went agains t us, ruling that tw o wholly-owned subsidiarie s o f the same corporation coul d con spire with one another if they held themselves out as competitors. Our task was, in effect, to say, "We think these guys are trying to pull the wool over your eyes on the merits, and if you watch how dishonest the y are in their exaggerate d damag e claims, you'll get an idea of the kind of folks the y really are." Rick Holwell and Tom McGanney cross-examine d the plaintiffs' exper t witnesses, getting concession afte r concessio n abou t "overstated" assets, "selling documents," and values "not certai n o r even substantially certain. " I didn't thin k tha t sounde d lik e weakness on ou r part, and neither di d the jury. After a splendid closin g argument by Rick Holwell, the jury took the minimum amount of time required by decency and returned with a verdict in favor of the defendants. Judge Rubin thanke d the m fo r thei r work an d thei r verdict an d the n spent quit e a lot of time charging the lawyers that they were not, unde r any circumstances, to talk to the jurors. Some courts might permit that , but he did not. He had an inflexible rule, and he would enforce it. We jumped with surprise to find James Jones, the jury foreman, seeking us ou t a s w e sippe d quic k celebratin g drink s i n th e hote l bar . W e reminded him that the judge had said we shouldn't talk to the jury. "Ah," he said, "but I went in and told him I wanted to talk to the lawyers and I didn't see why he should want to stop me. It certainly wouldn't be harassing for the lawyers to talk if I initiated the conversation." Despite the fact tha t a juror migh t revea l some possible ground fo r a mistrial to the other side, we were all ears, and we listened t o Jones fo r some time . H e rehashe d th e evidence , indicatin g prett y clearl y ho w closely the jury had followed the evidence.

Stockholder Suit s / 15 9

Although the plaintiffs ha d lost to a jury, they appealed to the Court of Appeals for the Sixth Circuit, claiming that Judge Rubin's short and fairl y simple charg e to the jury di d no t explai n thei r theor y o f liability wit h sufficient accurac y an d virtually charge d the m ou t o f court . The Sixt h Circuit Cour t o f Appeal s wrot e a stron g opinion , sayin g tha t Judg e Rubin's onl y mistake was to have tried the case; he should hav e throw n them out on our motion for summary judgment. The vigor o f the opinion gav e Mel the opportunity t o contras t i t to a recent Third Circui t cas e that had spoke n somewha t kindl y of "soft evi dence" in documents that should , despite their "softness" (lac k of "substantial certainty") , be reveale d rathe r tha n concealed . Th e differenc e between th e two circuit cour t opinion s depende d no t o n a difference o f legal philosophy, but o f the actual facts i n each case. We had to devote a substantial part of our brief in opposition to the petition for certiorari to showing the factual correctnes s o f the lower court' s decision . Since the role o f th e Suprem e Court' s certiorar i jurisdictio n i s t o pic k case s i n which the law needs to be settled, the rightness or error of the lower court is irrelevant. We tried to minimize any difference i n the approach t o th e law between the two circuits so the Court would not hold that the Third Circuit view was right and ours wrong. Our client , of course, wanted th e matter over with. We got the SEC to put in an amicus brief saying the trial judge's charge was correct, again theoretically an irrelevancy. Nevertheless, ou r basi c argument s wer e sound . N o conflic t existe d between the circuits on this record because, under th e facts o f each case, the Third and Sixth Circuits had arrived at consistent results. No conflic t with the decisions of the Supreme Court existed because the informatio n involved was so speculative. The Sixth Circuit was not in conflict with the federal agency charged with supervision of this area of the law. SEC regulations forbade th e disclosure in the tender offer a s opposed to the statutory merger o f the speculative "selling documents." The Supreme Cour t came down with its simple ruling: "On consideration petition be and is— denied. June 23,1986." The celebrated case of Radol v. Thomas was at an end, with a complete victory for the defendants. Mel Weiss has made the further mistak e of saying that the greatest error of his career was not settling the case. He did, of course, have to swallow all the considerable cost s of trying the case. He

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had t o pay our cour t costs , which were allowed i n the rang e o f fifty to sixty thousand dollars, and, perhaps, he had a duty to seek to collect them from hi s clients. But he had shown he was not afraid t o take a verdict. All in all, the case had been worthwhile for our client; the cost of defense had been much less than the cost of settlement. We had not been totall y intransigent. Mel Weiss and those who had sought to impose a "litigation tax" on all mergers and acquisitions had been deal t a severe blow, to the benefit o f U. S. Steel Corporation and other great American companies. We had some superb victory parties. Dave Roderick gave one for us at the Stor k Club afte r th e Suprem e Cour t denia l of certiorari i n Radol v. Thomas, which ended the challenges to the takeover of Marathon. Unfor tunately, the White & Case team got to the Stork Club on time, but the U. S. Steel plane coming from Pittsburgh was delayed for two hours. By the time Dave arrived I had, like the stag at eve, already drunk my fill.My conversation was, I am afraid, less than sprightly, but the toasts weren't too bad: With their heads on pikes before us Their wine and beasts Supply our feasts and their defeat our chorus. and Odds blood, hammer and tongs long as I've been to sea I fought 'gainst every odds but I've gained the victory. Although "good strong blows are a delight to the mind," and the struggle itself is sometimes its own reward, there really is no substitute in trial work for victory . Nor, despite the wisdom o f settling often an d early , is there any satisfaction lik e a favorable jury verdict. In one stockholders' suit we got a settlement with a benefit for the corporation that we could never have achieved by any legal victory in court. It was a win-win negotiation, in which both the lawyers who brought the suit and particularly the clients that we defended cam e out ahead, but the general counsel has to this day a bad taste in his mouth abou t having let plaintif f stockholders' lawyers have anything to do with the conduct o f his corporation and the remuneration o f its officers. The plain fact is, although settlement i s often wiser , winning is more fun. My conclusion tha t the best way to deal with winnable stockholder suits is to try them was reinforced .

9 NEW TIMES , NE W CHALLENGE S FOR W H I T E &

CAS E

We Litigation Department lawyer s looked upon ourselve s as members of a service department, both t o the firm and to our clients , although Tom Kiernan though t I was too flip when I said out loud tha t th e purpose of the department wa s to serve clients as well as we could an d have fun i n the process. Tom thought w e also had a n obligatio n t o make money for th e firm. Throughout th e fifties there was a 92 percent incom e tax, and unti l th e seventies the top bracket fo r al l income earned o r unearned was 77 percent. Because we were partners an d considere d self-employed , ther e was no withholding tax . With five children t o educate , I found tha t mone y went out about as fast as it came in, and if at the end of the year it turned out I had made more money than I had anticipated, more than I had paid quarterly estimated taxe s on, then i n April there would be a big tax bill with no cash to cover it. The only times I ever personally came out ahead were when we underachieved o n firm income and I found mysel f ahea d rather tha n behin d o n April 15 . Perhaps these facts influence d m y view that "fame was the spur," not money. We all worked a s hard a s we could t o win ou r cases , sparing neithe r ourselves nor ou r associates , except that Oriso n would alway s try to see that I and other s got our vacations, even to the point o f staying aroun d himself t o handl e matter s i n th e summer . We did not , however , hav e computers to keep track of the hours eac h lawyer racked up by year. We could see who was busy and who was not, and we knew whether the lack 161

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of work was due to the lawyer's not being given assignments because people didn't like the product o r thought the lawyer had overriding interest s elsewhere, or because we were in a period of slack demand. We did not make budgets for the department or, indeed, for the firm as a whole. We simply kept certai n level s o f reserve s fo r payin g ren t an d salaries; and i n declarin g distribution s ever y week, we made sur e tha t there was a surplus of cash over the reserves. We debated how many new lawyers we thought w e should take in each year, largely dependent upo n attrition. We grew not by design but by making more partners when we needed them, and if the work demanded it, we kept more of the associates we had around longer and planned to take in more the next year. In short, we didn't think of the practice of law as a business or operate it like one. Nor (an d this is why we survived) di d an y of our competitors , with th e possible exception o f the Cravath firm, which, it was rumored, did som e planning to stay a constant size but to do increasingly profitable work and to pass less profitable work on to satellite firms. Along the way I was invited to become part of the Executive Committee of the firm, which, under a restructuring tha t gre w like Topsy, met onc e every two weeks for lunch . Although I did not recogniz e it, there was a ferment at the bar and even in White & Case. The young Turks were about to begin takin g over . The Executive Committe e rarel y made an y earthshaking decisions. Those were still reserved to the firm as a whole. Orison strongly believed in, and articulate d a vision of , a collegial firm in which every partner ha d a n equa l vote an d i n which th e partnership pi e was divided by the recommendation o f the Executive Committe e based o n chronological classes of partners who moved together to take up percentage points a s older partners die d or voluntarily surrendered shares . The concept was to keep a happy family that trusted one another. A group o f partners just slightl y younger tha n I , some of whom ha d served i n foreig n offices , wher e the y naturall y socialize d mor e wit h lawyers from othe r firms, started t o draf t a new partnership agreement . Governance issues naturally attract corporate lawyers. I recall the passion with which one partner, just a little junior to me, addressed the questio n that n o one should be on the Executive Committee past their sixty-fift h birthday. It was a passion I could no t share . Nevertheless, we did sig n a new partnership agreement. It provided among other new agreements for

New Times, New Challenge s fo r Whit e & Case / 16 3

the retirement of partners after th e age of seventy. This provision did not apply to those few partners who had alread y reached that age . In the old days, the firm had simply carried partners to the end. Once playing with the terms of the partnership agreemen t became the fashion, it continued. Eventually, the members of the Executive Commit tee becam e th e Managemen t Committee , an d a s th e firm grew , th e increasing power to run the firm in a businesslike manner rather than as a family shifted t o that committee. I became chairman in 1976 . Memories of the Colonel, Glover Johnson, Orison, and wartime experience se t my management style . Having been exec or skippe r i n a nonshooting hooliga n par t o f the Navy was not al l that different. I n the Pacific, the USS Alabaster trained destroyer crews on new antisubmarine gear. No senior officers wer e around to order training exercises. We cornered skippers of destroyers and DE's (destroyer escorts) at the officers' clu b and persuade d the m t o chas e one of our tam e sub marines eithe r o n thei r ow n ship s o r o n th e Alabaster, and w e score d "hits" with du d mousetrap s o r imaginary dept h charges , earning com mendation as a ship for training "over 10 0 attack teams each month." As in the office with phone calls and diary slips, we had to see that routine things like engine maintenance an d updating chart s were done an d recorded, but doing our best at our mission was what counted. I thought of a n ol d mustan g retrea d commande r who , lifting a n offendin g pin t from th e bell-bottoms of a returning sailor, flung it in the air and blasted it to bits with his .45 side arm. "Never do that again," was all he needed to say. Men would have followed hi m anywhere . I showed u p an d showe d that I cared. Neither disciplin e no r rewar d wa s fitting. W e rose o r fel l together. Not long after m y election, Ed Schmults returned from a distinguished career in Washington, where he had been general counsel to the Depart ment of the Treasury and then undersecretary . Ed brought a Washington skill and a desire to accomplis h thing s by negotiation rathe r tha n con frontation. We worked together on White & Case's greatest crisis, one that started befor e I ha d firmwide responsibilitie s an d ende d no t unti l a decade later, while I was chairman. I n th e late 1960 s there was a small company calle d Nationa l Studen t Marketin g (NSM) , whic h ha d th e bright idea of using students to sell on campus to the increasingly affluen t

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undergraduate bod y all sorts of products, from lif e insuranc e to sweat shirts and class rings. Cort Randall, who ran the company, had charism a and was a great salesman himself. The company did not declare any dividends becaus e i t reinveste d it s cas h an d mor e i n expandin g int o ne w products and new campuses, but the "earnings" (as reported by the company an d audite d b y Pea t Marwic k & Mitchell) kep t doublin g ever y reporting period . As a result the compan y kept issuin g more stock , and the stock rose on the market to a fabulous sixt y times earnings. It was the favorite of the analysts. Covington an d Burling , a premier Washingto n la w firm, decide d t o stop representing NSM, and NSM came to Larry Morris to se e whether White & Case would represent them. NSM was constantly acquiring companies, issuing stock, and doin g things that require d lawyers . They paid their bills promptly. Everything abou t the m seeme d first-rate, wit h th e possible exception that Randall was a bit too much of a salesman when he made presentations t o analysts, an appealin g challenge to Larry Morris. He loved riding herd on clients of that kind, lecturing them like a Dutch uncle to keep them o n the straight an d narrow . To him, keeping client s out o f trouble was the highest for m o f service, both t o the client an d t o the public. Larry asked a friend o f his at Covington why they had cease d representing NS M an d was told, "Well, that migh t involv e some clien t confidentiality. Why don't you ask them?" Larry did as k Randall an d reporte d t o a firm meeting that NS M ha d been sue d unde r th e antitrus t law s and tha t he , Randall, had been flip about that , had mad e a paper airplan e ou t o f the complaint an d sho t i t across the room a t a senior Covingto n partner , and had, in other ways, exhibited a lack of reverence for th e firm and it s advice. Larry took thi s explanation a t face value and tol d Randal l he didn't nee d reverenc e fo r himself o r hi s partners , but h e dam n wel l expecte d Randal l t o accep t White & Case's advice, or we would throw him an d his company out so fast i t would make his head swim. Randall indicated that he had learne d his lesson an d would follo w advic e about hi s behavior i n the financial arena. We should hav e asked for NSM' s permission t o have Covingto n and Burling tell all. On those assurances, the decision was made to take on this client and to assign young Jay Epley, a promising associate, to assist Larry and do a lot

New Times, New Challenge s fo r Whit e 8 c Case / 16 5

of day-to-day work for the new client. Jay, with boundless energy and a n exceptional skil l fo r draftin g corporat e document s (h e coul d thin k i n numbered paragraphs) , was delighted wit h th e assignment t o this wellknown client. Jay's open, enthusiastic nature fitted in well with the euphoria a t NSM. His happiness increase d b y becoming a partner o n Jul y 1, 1969, and being given charge over the firm's service to NSM. A few months later , in the summer o f 1969 , NSM started negotiatin g the acquisitio n o f Interstate Insurance , a Chicago compan y represente d by Lord, Bissell & Brook. As was customary in those days, the medium of exchange was not deb t o r cash but stoc k of the acquiring company . The closing would occur October 31,1969. Interstate was entitled to a comfort letter fro m Pea t Marwic k & Mitchell, on e o f th e bi g eigh t accountin g firms, indicatin g th e correction s o f NSM' s nine-mont h figures fo r th e period ending May 31,1969, and saying that no sizable bad financial news had appeared to the accountants up to five days before the closing. Unbeknownst t o Pea t Marwick & Mitchell, Interstate an d it s invest ment bankers, Jay Epley, and everyone else but the insiders at NSM, NSM had been operate d a s a shell game for som e years. Receivables had bee n recorded when non e existed . They had successfull y cooke d their books. Massive fraud permeate d every aspect of their finances. On the afternoon o f October 31, Peat Marwick & Mitchell got cold feet. How much they suspected a t that time , no one will ever know. They did not delive r th e comfor t letter . Ja y calle d Natell i o f Pea t Marwic k & Mitchell and asked about the letter. Natelli said they were finalizing it and dictated th e letter to Jay's secretary. Jay took the dictated lette r int o th e conference room where the closing was taking place and gave out copies. The letter, obviously not a clean comfort letter , placed responsibility on the representatives of Interstate to decide whether to waive the conditio n of gettin g a letter a t al l or t o decid e tha t th e letter wa s "satisfactory t o Interstate." The representatives o f Interstate a t the closing held a significant portion o f the Interstate shares being exchanged and , consequently , of the NSM stock to be received. They had just been advise d tha t the y would no t b e able to sel l most o f the NSM shares they were personall y acquiring. They discussed this advice with Jay, who concurred. Everyone knew that the Interstate representative s a t the closing were dealing with their ow n fortune s an d ha d a greater stak e i n th e dea l tha n an y othe r

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stockholder. If the comfort lette r suited them fo r their own stake, should they no t b e truste d t o mak e a proper busines s decisio n fo r th e othe r shareholders? Natelli called again, to be told that Jay was still in the conference room . Jay returned t o his office an d onc e more talked t o Natelli, who sai d h e wanted to add a paragraph t o the comfort letter , pointing out that if you made the adjustments to the May 31 figuresreflected in the dictated letter, the Ma y 31 figures would the n sho w a loss instead o f a profit o f thre e quarters o f a million dollar s an d tha t NSM , as constituted o n Ma y 31, would break even for the year. Jay said, "Why would you want to add the first item? That's just a mathematical calculation that is obvious to everyone who has the letter as dictated; an d wh y th e second , sinc e th e compan y ha s mad e severa l acquisitions since May 31, and, again, you can make this calculation if you wish from the material at hand?" Natelli said, "Those are my instructions from New York." "Let me talk to New York," Jay retorted. After a short wait, a Mr. Holton called , and Ja y asked what the para graph added that was new. Jay got no answer. The upshot was that Holton would talk to his counsel about whether or not to add the paragraph. Jay told Holton the deal would close before 4:00 and went back to the confer ence room abou t 3:3 0 to find the transaction alread y closed and peopl e shaking hands an d headin g for th e airport a s fast a s possible because it was Friday afternoon an d they wanted to beat the traffic . Holton did not call back until 4:30 P.M. He then said that he wanted the paragraph to go in as dictated and that he wanted a further statemen t that these revised figures should be shown to both NSM and Interstate stock holders before the transaction was closed. Jay told Holton that the transaction was closed and Holton should talk to his counsel and d o whatever he felt wa s proper i n the circumstances . Holton sai d he would sen d copies of the letter with the two added para graphs to the directors of both companies and consult counsel as to what other step s t o take . Davies, NSM's insid e genera l counsel , was stil l a t White & Case and was informed o f all these conversations. Jay reviewe d wit h Davie s al l circumstance s o f th e Pea t Marwic k & Mitchell letter and the suggestion that it be sent to stockholders. Moreover,

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Jay gave Davies accurate legal advice on the consequences o f sending out or no t sendin g ou t th e lette r t o th e genera l public . Pea t Marwic k & Mitchell were about t o conclude their fiscal year-end (Augus t 31 ) audit , and th e audite d figures woul d com e ou t i n tw o week s o r less . I f th e audited figures at year-end were on target, the interim speculation of Peat Marwick & Mitchell would be relatively meaningless. Nevertheless, if the letter was released before th e year-end figures were available, the stoc k might well go down i n value before recovering . If that happened , NSM might be sued by shareholders who sold their stock. If, on the other hand, there turned out to be some problem in the year-end figures and NSM did less well for th e fiscal year than anticipated , then NSM might be sued by shareholders wh o ha d no t see n th e lette r an d wh o ha d no t sol d thei r shares. Significantly, nothin g i n th e Pea t Marwic k & Mitchell lette r o r other Pea t Marwick & Mitchell communications indicate d an y problem with th e year-en d projection s o r hinte d i n an y wa y a t an y fraud . Ja y advised Davies to consult with his treasurer an d with the auditors to get their views on whether there was likely to be any change in the fiscal yearend figures and to decide on that basis which was the better way of protecting NSM from charge s of falsehood . Other tha n sendin g th e letter s t o th e directors , Pea t Marwic k & Mitchell too k n o furthe r action . Som e o f th e director s wh o ha d som e stock they were permitted t o sell did so in accordance with their origina l intention. The August figures came in as anticipated. It looked as though all of Peat Marwick's concern had been a tempest i n a teapot. But by the beginning o f the next calendar year, the real facts tha t NS M itself was a sham (wit h figures that had been a sham for a long time) began to come to light . Th e stoc k o f th e compan y plummeted , a n SE C investigatio n broke out, and several private lawsuits started. The SEC was particularly intereste d i n why Peat Marwick & Mitchell had not known of the fraud, since Peat Marwick & Mitchell were, and had been all along, the auditors. Because some of the Interstate principals had sold some of their NSM stock on the market immediately after th e closing, the SEC saw that date as a convenient one to provide a possible violation of the securities laws. The SE C summone d Ja y almos t immediatel y t o appear . H e went , accompanied by other lawyers from White & Case. The SEC enforcement

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division was riding high, wide, and handsome in those days. When aske d about specific conversation s with representatives o f NSM that took place with n o outsider s present an d where information wa s given to counsel , Jay properly, with the advice of White & Case, cited our client' s privilege and decline d t o testify abou t privilege d conversations . The SEC lawyers were livid . The y insiste d a frau d ha d bee n committed , constitutin g a crime, that th e crim e was ongoing until al l the facts had com e out, an d that a criminal clien t while continuing i n the crime had n o privilege t o protect. White & Case's response was that the SEC could attempt to get a court t o s o hold , bu t unti l th e clien t waive d th e privileg e o r a cour t directed u s otherwise, we were duty-bound t o decline to answer i n protected areas . The SEC were not onl y angry; they thought w e had some thing to hide. In the meantime i t appeared t o us that Pea t Marwick & Mitchell was trying, with respect to the alleged violations on October 31 , 1969, to shif t the blame for their bad accounting to us, saying, "We tried to send White & Case a signal o n tha t Frida y afternoon. " O f course , Peat Marwick & Mitchell ha d a little difficult y wit h tha t becaus e what the y did pass o n contained n o hin t o f an y cookin g o f th e book s o r underlyin g fraud ; indeed, quit e th e opposite . I f Pea t Marwic k & Mitchell doubte d th e integrity of the figures, they could and should have said so. They did not. The United State s indicted the principals of NSM and eventually convicted them . On e o f th e accountant s a t Pea t Marwic k & Mitchell wa s indicted, was convicted, and served time in jail. He was later pardoned by the president o f the United States . Many years later, when I learned tha t he wa s just a smal l accountan t fro m a n acquire d firm an d ha d bee n totally out o f his depth i n the NSM matter, I asked Stanley Sporkin why the SEC had pressed for his prosecution when they knew he had done no moral wrong. Stanley said, "Ah, that's just the point. If he had been a real crook, we would hav e had n o interes t i n him. Since he was just a poor slob, we threw the fear of God into the accounting profession b y sending him to jail." The SEC brought a civil suit for an injunction agains t NSM; Peat Marwick & Mitchell; Lord, Bissel & Brook; Interstate; the selling stockholders; White & Case; and Jay Epley. The SEC tried but di d not succeed in pressuring the Department of Justice into indicting Jay Epley.

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Stripped o f its legal verbiage, the complaint allege d that White & Case and Jay had failed t o refuse t o give the usual legal opinion a t the closing, failed to insist that their client follow Peat Marwick & Mitchell's advice to resolicit th e shareholders , failed t o ceas e representing thei r client , an d failed to turn in the client to the SEC. These allegations rocked the bar, and we were encouraged o n all sides to take the SEC on ful l bore . We did. The SEC took reams of testimony . Both sides filed motions a s to the pleadings and appeal s to the Court o f Appeals for the District of Columbia Circuit and to the Court of Appeals for the Second Circuit, and cross-complaints. Pretrial testimony filled volumes. The SEC brought up more points. They got the Justice Department to indict the house counsel of NSM for frau d an d explaine d to the cour t at his trial that he had, on a couple of occasions, defrauded Whit e & Case by asking for opinion s o n narrow points of law, which opinions he then misused without White & Case's knowledge. The house counse l pleade d guilty on tria l and skippe d th e country. Nevertheless, the SE C added t o the complain t agains t Whit e & Case count s involvin g thos e opinions . Winthrop, Stimson, Putnam & Roberts represented u s in New York and Arnold and Porter in Washington. Orison headed the White & Case team with th e abl e assistance o f David Hartfiel d an d others . The more testi mony was taken, the more convinced we became that Jay had acted properly an d wisel y i n everythin g tha t h e ha d done . Ou r resolv e t o stan d behind him became, if in any way it could, stronger and stronger as time went on. This was not just a matter of getting dug in and convincing ourselves that we were right, but i t was the balanced opinio n o f Orison an d other sound trial lawyers who were not slugging it out in the trenches day to day as David and the outside lawyers were. Our insurance carriers were decent an d paid some of the substantial trial preparation expense s as we went along. My personal involvement with the NSM case in its first three years was not great. I discussed it from time to time with Orison and was aware that the issues that it raised about whether Jay, as a lawyer, had had a duty (as the SEC contended) t o prevent the closing, to withdraw from th e representation of NSM, or to notify th e SEC were being debated in the American Ba r Association an d elsewhere . I applauded ou r positio n tha t th e steps suggeste d i n th e SEC' s complain t woul d hav e violate d Whit e &

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Case's professional responsibilit y to NSM an d would hav e subjected NS M to possibl e liabilit y fo r failur e t o complet e th e closin g i n th e fac e o f th e Interstate decisio n t o close . In 197 4 the American Ba r Association House of Delegates voted to mak e clear that th e lawyer's duty o f confidentialit y t o the clien t was paramount . Indeed, th e ABA amendment wen t fa r beyon d wha t wa s necessary t o sus tain th e positio n o f White & Case an d Ja y Epley. It change d Disciplinar y Rule 7-102 B(l) b y adding at the end the phrase "except when the informa tion i s protected a s a confidence o r secret." The whole sentence reads : A lawyer who receives information clearl y establishing that : His clien t has , in th e cours e o f th e representation , perpetrate d a frau d upon a person o r tribuna l shal l promptly cal l upon hi s clien t t o rectif y the same, and if his client refuses o r is unable to do so, he shall reveal the fraud t o the affected perso n o r tribunal, except when the information i s protected a s a confidence o r secret . (D R 7-10 2 B[l] , reprinted i n Wolfram, Modern Legal Ethics, app. B, West Publishing Co., 1986) White & Case and Ja y did no t nee d thi s language because a t the time o f the criticize d closin g Ja y had n o informatio n abou t an y fraud , le t alon e any "clearly established fraud. " The SEC had challenge d the bar i n its mos t fundamental rol e o f protectin g person s accuse d o f wrongdoin g an d ha d been hande d a resounding rebuke . Shortly after I became chairman , the firm directe d E d Schmults and m e to g o dow n t o th e SE C an d brin g bac k thei r mos t favorabl e settlemen t terms o n NS M s o tha t Ja y and th e firm coul d conside r whethe r t o con tinue th e fight o r t o see k a n honorabl e settlement . Th e tria l wa s approaching. I f i t too k place , i t woul d las t severa l month s a t leas t an d require th e ful l tim e o f Jay , another corporat e lawyer , an d severa l o f ou r best litigators . You alway s hope i n bargainin g wit h a government agenc y that yo u ca n end up giving the "sleeves off your vest." We got specific an d detailed advic e from ou r counse l on what the effect o f various provisions would be . The proces s o f bargaining wit h staf f t o arriv e a t a settlement t o offe r t o the firm wa s particularly difficult . I n bargaining, technique dictate s tryin g to kee p th e abilit y to hav e the las t loo k a t th e packag e an d b e abl e to say , "The boar d o f director s wil l accep t thi s packag e bu t onl y i f you cu t th e

New Times, New Challenge s fo r Whit e & Case I 171

monetary portion in half." On the other hand, the staff wants to be able to say, "Stanley says it's OK if you will just double the penalty." In taking the position tha t th e law firm of White & Case, as it was then constituted , would have to pass on a completed package, we were not playing games. No one had authority to make a decision for our sixty or so partners. The firm would have to meet and vote, with each partner having an equal say. Eventually, we worked out a proposal that there would be no injunctio n against White & Case. The firm would memorializ e it s practice o f com mittee involvement in certain issues in a letter to the SEC. The SEC would issue an injunction agains t Jay saying that he could not appear before th e SEC for a short period or work on matters to be submitted to the SEC for that time. Everyone knew Jay was presently working on private placement financings for insurance companies that did not involve SEC jurisdiction and that, as a practical matter, that branch of the injunction woul d not in any way interfere with his work, although obviously it made him look bad and the SEC look good. There followed a fairly lengthy provision t o th e effect tha t Jay Epley would obey the law in several enumerated respects in all his dealings with National Studen t Marketing , which everybod y who read the financial press knew was defunct, dead , and buried. This tended to signal to the cognoscenti that the SEC didn't think too badly of Jay. The SEC asked Ed to Washington again . I thought Sporki n was testing our nerves . Th e ol d wa r hors e "stamp s an d paw s th e groun d fo r h e smelleth th e battle afa r off. " I took th e position tha t th e prior proposa l exhausted m y ability to present anythin g to the firm. However, Ed and I had been asked to come up with the SEC's best proposal to present to the firm, and we had to find out what that was. They finally offered tha t th e period o f Jay's inability to do direct SE C work should be increased fro m sixty t o ninet y day s an d tha t otherwis e th e stipulatio n woul d remai n unchanged. The difference betwee n sixty and ninety days was purely cosmetic, but we were dealing with Jay's reputation and the firm's. We put the completed proposal in writing to the firm. Some partners, particularly Mor t Moskin , thought tha t althoug h w e all agreed that Jay could control his own destiny and accept or reject th e stipulation offere d him , too much pressure was put on Jay by the knowledge that if he rejected the proposal regarding him, the SEC would probably reject th e White & Case agreement i n retaliation. Mort fel t tha t th e

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package Ed and I had brought bac k from th e SEC was fatally flawe d i n that it treated Jay differently fro m th e firm. He said the firm should negotiate one agreement with the SEC that did not in any way differentiate Ja y from an y other member of the firm. We ha d a firm meetin g on e evenin g wit h Milto n V . Freeman, Ab e Krash, an d Danie l A . Resnick , o f ou r Washingto n counsel , a s wel l a s Edwin J. Wesely of Winthrop Stimson , our New York counsel, present by invitation. The issues before th e meeting were the ones raised by Mort; the certainty (o r lack of it) o f a favorable judgmen t fro m U.S . District Judge Barrington D. Parker after a long, bitterly fought trial ; the degree, if any, of self-blame implie d i n the settlement; the effect, i f any, of enterin g into the arrangement, on the reputation o f White & Case and Jay Epley; and the balance of these factors. We went around the table and each partner expressed in his or her own words a view of the proposal. I said that althoug h E d and I had brough t back the best dea l the SEC would offe r and , in my opinion, no negotia tions could obtain a better deal, I was in favor of standing trial on the slippery slop e and prevailin g o n th e merit s o f the case . I said tha t a s Jay's champion w e should fight on till the stars appear an d not yield or pronounce the word "craven." Ed and others pointed out that most thought ful peopl e would recogniz e that White & Case was fully exonerate d an d that the SEC looked foolish i n settling for a decree against Jay prohibiting him fro m breakin g the law with a n interred corpse . Although th e risk of losing a trial might be slight, no one could guarantee the result of any trial of three months' duration. Furthermore, the first days of the trial, when the SEC presented their views, would be elaborately reported in the press. By th e tim e ou r tur n cam e a s defendant , th e reporter s woul d hav e deserted the courtroom. In the meantime, some of the best lawyers we had would be out of service. Moreover, the facts abou t NS M itself a s they were finally revealed were so bad that it might be difficult fo r a judge or the public (in the light of hindsight) t o believe that some inkling of suspicion did not, or should not have , entered ou r minds . We went aroun d th e table again with on e more opportunit y fo r everyon e t o speak . The n w e voted. I forge t th e actual count, but it was about two to one for settlement. We adjourned a s a united firm around midnight . Ed took the early shuttle to Washington.

New Times, New Challenge s fo r Whit e & Case / 17 3

He reported b y phone to David Hartfield th e course of the negotiation s with the SEC about signin g the papers, filing them i n court, getting th e judge's approval, alerting the press, and so on. David asked me to come to his room; the SEC was proposing a press release in the language of a brief that it frequently use d and at least once got adopted in a judicial opinion. It read somethin g like this: "There ar e criminals who take money away from peopl e at the muzzle of a shotgun. There are sometimes others who unfairly relieve their fellow citizens of money with no weapon more powerful than a typewriter. The latter of these are worse than the former. " I blew my stack. I flapped my arms. I shouted into the telephone, "Tell the SEC to take that proposal off the table. We withdraw our offer. We will not even talk with that proposal around." Abe Krash and Ed tried to calm me down , but wit h David' s backing I remained adaman t an d strident . "Tell them negotiations are at an end unless they take that proposed press release and stuff it in the waste basket." In about two hours our team called back to say they and the SEC had agreed to a joint pres s release, simply announcing settlement , attachin g copies of the actual papers. Both sides would agree not to comment publicly about who got the better o f the deal. We filed the papers and close d the matter. Percy Chubb rea d abou t th e terms o f the settlement i n the New York Times, the Wall Street Journal an d the insurance industry press. He said he thought that we had entirely bested the SEC, giving them only a letter from Whit e & Cas e affirmin g ou r presen t practic e an d havin g Ja y enjoined i n a totally meaningless fashion . Jay remained a valuable, busy, and productive partner unti l his retirement. Ed Schmults returne d t o Washington a s deputy attorne y genera l under William French Smith and then went on to a highly successful business career. Mort Moski n i s in fine fettle an d on e of ou r mos t valuabl e partners. Mindful, n o doubt , of Judge Sporkin's recurring questio n "Where are the accountants an d the lawyers?" the Resolution Trus t Compan y (RTC ) went after severa l prominent law firms in the mid-1990s. The RTC played hardball and seized the bank accounts and other assets of one firm simultaneously with filing a law suit. That Manhattan firm later published th e confidential repor t o f the Departmental Disciplinar y Committee investi-

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gation int o th e speed y an d expensiv e surrende r o f th e la w firm. Th e report was unable to uncover any dishonesty or rule breaking by the firm. Apparently they settled and their insurers paid tens of millions of dollars for the reason they had claimed, that the seizure of their assets was simply too powerful a weapon to withstand. In the next round other firms folded in the face of a mere threat to seize assets. Times have changed. One winter, while I was chairman of the Management Committee , White & Case set up a dinner to celebrate the birthday of one of its oldest clients, Arthur Young & Company, the well-known accountants. Roger suggested that the Links Club would be the best place in the city for suc h a dinner, and I concurred. Two days before the dinner was to take place, a secretary called from th e Links Club and aske d for th e names o f the attendees so that they could make the place cards. The next day I got a call from th e Links Club. No woman coul d ente r their doors , not eve n our partne r Laur a Hoguet. I hung up an d went t o see Roger. He was, despite being only about a decade older than I , hopelessly out-of-date o n this issue. "Laura is a good sort," he suggested. "Why don't you ask her to plead a headache?" "Not on your life," I replied. "We have never had even an inquiry about treatment of women in this firm and we don't intend to risk a run-in with the city , state, or federa l antidiscriminatio n folks . Besides, as you wel l know, there are no rea l secrets; the story would be out i n under a week and ou r nam e woul d b e mu d i n ever y law school i n th e land . Finally , Laura is our partner." I called up the Union Club , to which s o many members o f my famil y had belonged that I had been elected at age twenty-one, and arranged t o have the dinne r there . The stor y did lea k out, and on e o f the partner s responsible for employment opine d to me that if we had indeed caved in to the Link s Club, it would hav e taken som e years and m y resignatio n from the firm to have White & Case regain its status at the law schools. Back in 1964 , the year Colonel Hartfield died , New York passed a law making it unlawful fo r an y group employin g one hundred o r more per sons to discriminate agains t women. The Colonel, for al l his preferenc e for th e fai r sex , did no t thin k i t suitabl e to emplo y them a s lawyers a t White & Case. We were fortunate, perhaps , that we had no t i n the pas t

New Times, New Challenge s fo r Whit e & Case / 17 5

employed women lawyers because many of the firms that di d establishe d a culture that confine d wome n t o som e one field of law, frequently th e trust an d estates department. They had a tradition o f treating women as of some different orde r of lawyering. In the years after 1964 , White & Case employed women lawyers and treated them as equals. Society has not yet found the formula for making it possible for women with demanding husbands and children to compete on equal footing with those men who have nondemanding, contributing wives. Plans for maternity leaves , sabbaticals , an d s o on , d o no t full y compensat e fo r thi s ingrained cultural pattern. Probably changes in the way men and women look at life are more important tha n programs inside the firm. Nevertheless, we are aware of the problems. One of our best male lawyers left u s to run a cattle farm i n Vermont because h e preferred tha t life . Other s g o into rea l estate , investing fo r themselves, or jobs where nine to five is the rule and not the exception. Some women ar e able to rais e children, lead a full hom e life , and b e full-scale lawyers . My hat is off to them. I hope they can show us all the way. For reasons that I do not fully know, I lost out on election to the Management Committe e fo r 1980. 1 had serve d four years , and the firm was still a white light over Wall Street, but new times were coming. Jim Hurlock, a brilliant, hard-working, hard-driving lawye r who ha d headed u p bot h ou r Londo n an d ou r Pari s office s an d buil t the m b y bringing i n clients , became chairman . He had a vision o f a much mor e actively managed firm, a determination to grow, and a conviction that the purpose of all the excruciating care and effort tha t we gave to clients was to make money for the partners. He believed no less than I in craftsman ship in the law, no less in service to clients; that is necessary to bring them in the front doo r an d to hold them, but a t the end of the day he wanted everyone who brought i n new clients and serve d clients well to have the chance to make real money. He was not ashamed of wanting himself an d his partners t o be rich. To that en d he was willing to sacrific e th e kind , Quixotic, collegiality that had caused Colonel Hartfield t o fight for poo r old Jesse Waid (see chapter 4) and others to remain compensated partners to the end of their days.

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It was lucky that Jim came along when he did because the competitiv e climate in which we practiced law was changing rapidly. The escalation of the going rate for associates exceeded general inflation by multiples, causing pressure o n everyone . No longer coul d w e afford t o hav e nonbus y associates waiting aroun d fo r th e big deal to com e in. The competitiv e standard for billable hours crept up beyond two thousand per year. If you are keeping up with the law in your field, some general reading is necessary. You have to write diar y slips, interview applicants , do som e non chargeable things for clients , take associates to lunch, do some pro bon o work, answer phone calls from home, and a dozen other chores, which cut down the time available to do substantive work for clients. Two thousand hours mean s eigh t hours a day, five days a week, fifty-two weeks of th e year, with no time out for holidays. This would mean working nights and weekends to make up for all the nonbillable time. Although I frequently exceede d such a schedule as an associate and as a partner fo r long stretches at a time, perhaps as much as six months without a break, I am a firm believer that for most people it is too much if followed year in and year ou t without letup . Studies by the Constructio n Committee o f the Business Roundtable confirme d tha t fo r constructio n jobs, scheduled overtime was counterproductive, slowing down construction progres s noticeabl y afte r onl y si x weeks , whil e escalatin g cost s unduly. Lawyers, at least our lawyers, are differently motivate d an d have worked har d al l their live s t o achiev e th e competitiv e positions , fro m kindergarten up , that enable d the m t o ge t int o goo d la w school s an d graduate near the top of their class. But they have limits, too. Clifton Thompson, of the law firm of Appleton, Rice & Perrin, a regular at my church, told me of a classmate who boasted that he worked so hard that he had had two nervous breakdowns. "What I really need when I' m in a jam," said Cliff, "is a lawyer who is about t o have his third nervou s collapse." People toda y criticiz e th e habi t o f chargin g o n a time basis an d th e temptation i t present s t o overstaf f matters . Lowel l Wadmon d woul d scarcely have known what that meant. The old formula o f factors t o be included i n determining th e reason ableness of a fee, which Grandp a Mitchel l told me he had had a hand i n establishing, relied much more upon the importance and difficulty o f the

New Times, New Challenge s fo r Whit e 8 c Case / 17 7

problem and the results obtained than on the "time and labor required." It said nothing about the time actually spent. Lowell's bills never came out promptly, but each one had to tell a story. From th e forma l language , pages long, the stor y told between th e line s was clear: You came to u s in grea t distres s [recitatio n o f admitted facts] . We carefully assesse d the perils surrounding you [exegesi s on the law]. We came up with the following strateg y . .. whic h turned th e tables as follows . . ., fought for you long and violently [step s set out in full ] and left yo u umptee n percen t bette r of f than you would otherwis e have been [detai l if necessary], for whic h ou r charg e is only [ a few hundred thousand dollars] plus disbursements. The amounts of his bills were set by Lowell with an eye to what the individual hours had contributed t o each of these elements, some perhaps at more than time and some at less. Although the hours were not se t forth , they were available to discuss if need be. The statement fo r professiona l services by itself, however, if read aloud in a courtroom o r a board room , would fully justify the amount billed. That's still the best way to do it. A reporter once called White & Case "the kind of firm where you don't need t o put a stipulation fo r adjournmen t i n writing; they'll alway s do what they say." One of our younger trial partners was livid: "Why do they have to pick on that? Can't they say first that we're hard-hitting and effec tive? What client wants a firm whose claim to fame is that they treat their opponents decently?" The answer may well be, "A smart one." The problem remains ; how do we get lawyers to behave in a civilized way, tough bu t fai r an d courteous ? Th e disciplinary system i s too over burdened t o do it, and limitin g the bar t o ladies and gentlemen , even if we could define those categories, is not the answer. It is probably as multifaceted a s getting violence ou t o f our society . All we can d o is to keep trying. In my lexicon, the word is "service." The lawyer ought always to be in a position t o rende r th e best possible clien t service . In the long run tha t means good health , a reasonable degre e of community involvemen t s o that the movers and shakers know you by reputation, and a good famil y

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life so you understand the aspirations of the most desirable of clients. My personal conviction i s that these good things are hard to achieve without a personal religious life. By 1980 lawyers started to move from firm to firm. Gossip sheets, such as The American Lawyer, were reportin g o n thes e move s an d o n th e income o f firms and individua l partners . Headhunters i n the legal field were not onl y looking for associate s with severa l years' experience; they were also looking for partners. Partners were beginning to think of themselves as having freestanding "practices " that they could mov e from on e firm to another. Of course, a happy firm is a loyal one, and people are happy as long as they are busy and there is enough mone y to go around. Enough i s more than last year for most folks—"No quarrel s after ha'pence. They pluck the trees for bread." So the job that Ji m had i n this new climate was not a n eas y one. He needed to build the firm in a solid way, but he had to make it grow. What doesn't grow , dies. Other firms were growing by taking in outsid e part ners. We had to do the same. A firm has to be a well-rounded firm, ready to do as much o f the clients' work as possible. The legal press keeps talking about "elite boutique firms" that do just one or two kinds of work and do it superbly. There may be such firms, but, with exceptions, they tend not to last long. In the 1980s antitrust litigation shrank so considerably that at least one of th e bes t Washington, D.C. , firms specializin g i n antitrus t close d it s doors. Fashions in litigation, in finance, and i n regulation com e and go. Stock market collapse s used to stop the legal work on issuin g new common stoc k cold . Then th e SE C simplified th e process greatly. Then th e issuance of common stoc k dried u p in favor o f debt issues . Mergers an d acquisitions hav e voraciously consumed hour s o f top lawyers' time an d have attracted premium billing because they go to the heart of the corporate clients' plans or existence. From time to time they disappear as fast as they came on the scene . The lawyers and the firms who ca n respond t o these changes are in a position t o survive. A firm that i s truly a firm can help select the antitrust specialist s who should be shifted t o other work , can support them while they get established in new fields,and can grow in those new fields.

New Times, New Challenge s fo r Whit e & Case / 17 9

Managing such an operation takes brains and courage. As Lowell Wadmond once told me, in a law firm you manage prima donnas. Jim has done it superbly . Under hi s aegi s the firm ha s become th e country' s leadin g multinational firm, has added enormously to its national stature, and has expanded into the patent field in a way no other major firm has even tried. Other firms are contracting afte r th e excesses of the merger and acquisi tions bonanza of the 1980s, but White & Case is still growing in the 1990s. Mr. Case wrote on the fiftieth anniversary of White & Case: I trust that the partners and every associate will try in the future a s in the past to always be honest, both intellectually and in material things; to be thorough in every task undertaken; to be tolerant of the views of clients and all others; to avoid selfishness and meanness; to always keep uppermost i n your minds and hearts the high professional obligation s as members o f the Bar; and last but no t leas t to practice a t all times humility. As long as that is the credo the firm commands, its good name deserves to be treated as a sacred trust.

10 SERVICE AN D PROFESSIONA

L

RESPONSIBILI T Y

Holmes said in his grandiloquent wa y that a man shoul d shar e the passion and action of his time at the peril of being judged not to have lived. Most o f us don't mak e it onto tha t plane , but eve n trial lawyers get the chance to be involved in public issues. My most important experienc e in the public area came through Roger Blough. I n 196 9 Roge r Bloug h passe d hi s sixty-fift h birthday . H e returned t o White & Case with the title of "partner" and took a place on the list among his contemporaries, but with a basically fixed compensation. Roger had a definite object in mind when he returned. He had ideas about extravaganc e i n the U . S. construction industr y that h e believed could be cured by the big industrial companie s for whom s o much con struction i s done. He neede d a jack-of-all-trades kin d o f lawye r wit h enough knowledge of the antitrust law to keep such a group out of trouble. I volunteered. Under Tom Kiernan's aegis, White & Case had also for some years been performing a similar functio n fo r a "labor group " that me t monthl y t o report o n development s i n labo r negotiation s durin g th e cost-push , demand-pull inflatio n day s of the Vietnam War. Because as a trial lawyer I had a fairly accurat e ear, I had frequentl y acte d as secretary, recording the details of each reported contract : wage escalation, increased benefits , overtime provisions, roll up, and the like. Roger now devoted substantive attention to this group and became its leader. He asked me to continue as secretary at all meetings. 180

Service and Professional Responsibility / 18 1

In the early days of this exercise, when the CEOs were bemoaning th e adverse effects o f wage-push inflation , I was sufficiently naiv e to sugges t to Roger that CEO s were ideally situated to make a leadership contribu tion by voluntarily limiting their own compensation to , say, two hundred thousand dollar s a year. Roger patiently explained t o me that boards of directors had to have the flexibility t o attract the best possible executive s and that limiting their options would be disastrous for U. S. business. I did not press my views. When Presiden t Nixo n institute d pric e and wage controls, Roger was asked to serv e as counsel to the business members o f the Wage Control Board. He invited me to accompany him to Washington to carry his bags (as the expression goes), do any necessary research or writing of position papers, and the like, a fascinating assignment (althoug h the work was not time-consuming) becaus e th e public member s wer e dedicated an d th e labor leaders were the top union people of the day. William Winpisinger, of the Machinists Union, was perhaps the most articulate; he punctuated his speech with the bony thumb of a hand missing two fingers. The public members held the balance of power and , more ofte n tha n not , voted with the union members. The work tapered off and ended as suddenly as it had begun, and Roge r returned hi s attention t o the building industr y problems. Roger calle d the constructio n grou p "The Constructio n Users ' AntiInflation Roundtable." Originally, it was composed of a score of companies in different industrie s who frequently built oil refineries, factories, or warehouses. Roger hired a knowledgeable construction manage r named Mike Graney, and th e group starte d i n a rather informa l fashion , exchangin g stories about what had gon e wrong in building that the y had don e an d how they had set about to cure or avoid similar problems in the future, just the way a group of people who had constructed private houses might do: exchanging stories about which changes or lack of foresight had run up the cost o f building o r renovatin g thei r dwelling s an d fro m tha t exchang e beginning to write a manual on how to build a house within the budget. The building unions, organized along craft lines, dominated most metropolitan area s and undul y escalate d costs . Union bashing was not ou r style, but I had seen the problems of rigid craft division s firsthand i n the Philadelphia Nav y yar d whe n th e Alabaster wa s bein g fitted fo r ne w

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duties. To put out a smoldering fire, a workman had picked up an auger to make a hole in a wooden partition and spray in the fire extinguisher. "Put down that tool and wait for a carpenter" shouted a straw boss. Without legal precedents for a guide, I tried to recall the views of visiting professor Myer s McDougal that th e objec t o f study was not t o find symmetry or certaint y but t o learn th e grammar o f the subject an d th e legal tools to achieve the results society needed. The Roundtable bega n t o uncover ways to get around th e problems . One way was to have much mor e managemen t attentio n t o designing , building, and schedulin g work s o that th e electrician s di d no t nee d t o come on the site until the bricklayers were finished. Another was to work up a "project agreement, " a special contract signe d by all that permitte d more efficiency by establishing uniform condition s such as hours of work, holidays, and so forth. We faced unexpecte d challenges . Jack Sutro o f Pillsbur y Madiso n & Sutro, whom I knew through the American Bar Association committee on the judiciary (wher e his uncompromising vie w on the quality of candidates was refreshing), was a thorn in our side. He refused t o be persuaded that we had so organized the meetings of corporate representatives on the problems of excessive construction cost s as to eliminate any practical risk of antitrust violation. He had a number of loyal business clients whom he had represente d fo r decade s and whom he refused t o permit t o join an y such meetings. We pointed out ways in which we had eliminated each separate risk that he brought up, but at the end of the entire recital he always came back to the same point: "I don't care how you say it; there still is some risk, and I will continue to advise my clients to stay out." Even Roger, wearing his former CE O hat, could not budge Jack's clients. I thought Jack was wrong, but I had to admire his determination and the loyalty of his clients. Eventually, the work of the Construction Users ' Roundtable began t o have a real impact on the cost of building factories i n this country, which was in the interest of both management and labor. By keeping the cost of the factory down, U. S. production was able to be more nearly competitive and hence keep more jobs here and insure the building of further facto ries, office buildings, and warehouses. In many sections of the country, buildings were constructed b y nonunion labor . The difficulty wit h the open-shop work was to find enough

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skilled workmen. The craft system included sometimes overly long apprenticeships, but it did ensure training for the trades. It was at first a difficul t antitrust problem to find the necessary moneys for nonunion training programs. One early suggestion for addin g a penny or two to the hourly rate for this purpose was discarded. Eventually, schools were set up funded b y a variety of sources, and training of nonunion workers became a reality. Roger ha d als o worke d wit h a collectio n o f chie f executiv e officer s called the "Thursday Group, " which talke d abou t polic y and legislativ e issues of interest t o business people—things lik e tax relief fo r money s invested in research. We consolidated al l three entitie s int o on e organizatio n wit h dues , employees, and a structured program. Joe Hinsey, a corporate partner, set up an unincorporated association, the simplest possible form of organization, whic h ha s serve d wel l fo r mor e tha n twent y year s now . Wallace Bates, the recently retired general counsel of New York Telephone, became president and ran the office o f what was named the Business Roundtable. Wage escalation dominate d th e discussion fo r som e years during an d after th e en d o f the Vietnam War, but i t gradually lost it s primacy an d finally disappeared a s an agenda item. Policy and legislation became the main focu s o f th e Polic y Committee , which wa s composed entirel y o f CEOs. The construction activit y was spun of f to a construction commit tee supervised by a CEO chairman an d a paid director . Mike Graney, the first director , died and was replaced by Dick Kibben. With my editing fo r compliance with law, that committee produced in the 1980 s twenty-three pamphlets o n constructio n industr y cost-effectiveness , dealin g wit h everything fro m measurin g productivity , throug h contrac t type s an d clauses, to the cost of quality deviations in design and construction . Th e committee stil l estimates that billion s o f dollar s ca n be saved that wil l redound t o increased U.S . competitiveness i f more companies will study and follow the suggestions. Some of the knowledge gained was useful t o me as president when the Pierpont Morgan Library remodeled the Morgan house at Thirty-Seventh Street and Madison Avenue, the basement of the existing library, and built the garden court to connect them. To my surprise, the work o f the Policy Committee, which me t in th e late afternoo n an d the n ha d dinne r a t th e Link s Club , because Roge r

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thought it had the best food and wine in New York, absorbed me. Almost every issue of public policy in the thirteen years that I attended a s secretary was discussed by a first-rate CEO who had don e his homework an d who wa s competin g fo r tim e o n th e agend a wit h equall y abl e an d informed people . An audience of CEOs does not like being talked dow n to. It was an education for me. For instance, in 199 0 Senator Patric k Moynihan suggeste d that Socia l Security taxes be rolled back because they were being used to disguise the extent o f the federa l deficit . Thi s issu e had arise n i n th e Roundtabl e a decade before a t the urging of Bob Beck, then CE O of Prudential Insur ance Company, who pointed ou t that the then-current rat e of tax would not suppor t payout s when th e baby boomers (i.e. , people my children's ages—then betwee n thirt y an d forty ) reache d retiremen t age . "Anyone with the vaguest actuarial sense would realize," he said, "that the amounts going in would not support the amount that would need to go out." Up to that poin t th e system had worked no t o n a n actuariall y soun d basis, but rather because the numbers of employed persons and the wages they received had grow n s o materially that curren t revenu e ha d alway s been enough to cover current retirement payments. In the years when the baby boomers were to retire, however, there would be fewer persons in the work force an d mor e retirees . The increasing life spa n o f Americans, in addition t o the bulge in postwar population, would increase the numbe r of retiree s s o much tha t th e outnumbere d worker s afte r th e year 200 0 would no t hol d stil l fo r larg e enoug h Socia l Securit y taxe s t o pa y th e retirees. This would requir e either usin g general revenue or abandonin g Social Security, both perilous paths. A third possibility was to increase the taxes no w an d buil d u p a reserve i n th e Socia l Securit y Trus t Fund . A national commissio n wa s set up with peopl e fro m labor , business, and academia to come up with a proposal, thus taking the heat off politician s who would not want to recommend the necessary increase in Federal Old Age Survivors an d Disabilit y Insurance Taxes . They opted fo r th e thir d position, and th e politicians eventuall y raised the taxes, but the y didn' t hold the money aside in the trust fund. We now have the problem again. The position take n by the Business Roundtable o n this issue reflecte d long-range thinking (no t just this quarter's profits) an d was in the best interest o f the United States , not just in the interest o f business, because

Service and Professional Responsibilit y / 185 the la w impose s a n equa l ta x o n bot h employee s an d employers . Th e Roundtable recommende d a n increase d ta x o n it s member s i n orde r t o preserve wha t ha d becom e a n essentia l par t o f th e American fabric—th e Social Securit y system . Cynic s migh t argu e tha t i f there wer e n o reliabl e social security , corporation s woul d b e calle d upo n t o pa y thei r workers ' retirement i n som e form, i n an y event. Perhaps so , but i t would hav e bee n a new generation o f executives who would hav e had t o face that problem . Not al l of the proposals o f the Business Roundtable were as demonstra bly agains t th e short-rang e profit s o f busines s an d i n favo r o f th e long range interests of the United States as a whole, but in the decade and a half that I attende d th e Polic y Committe e meetings , no t onc e di d I hear th e tone o f discussio n deteriorat e fro m consideratio n o f wha t th e member s viewed a s th e bes t interes t o f th e bod y politi c a s a whole. I di d not , o f course, always agree personally with th e conclusions reached, but tha t wa s no mor e m y concer n the n i t had bee n Lor d McNair' s when h e was secre tary of the Coal Board. White & Case was paid to give legal advice, not m y political opinions . My publi c speechifyin g abou t professiona l responsibilit y bega n i n lat e 1980 with a n introductio n t o a debate o n th e subjec t a s the thir d Marde n lecture. I said, in a deliberately provocative tone : The subjec t o f Professiona l Responsibilit y is , oddly enough , an excitin g one. It is, as Bill [Pincus ] ha s pointed out , a field of action more than o f study. Only thos e engage d i n th e practic e o f la w with rea l live client s experience it s exquisite dilemmas . The hearings o n th e confirmatio n o f Mr. Justice Brandei s exemplif y no t onl y the racia l an d politica l preju dices o f th e elit e ba r o f hi s day , but als o th e danger s t o lawyer s an d clients o f no t clearl y specifyin g th e client , o r clients , fo r who m th e lawyer is to work. A brilliant career almost floundered o n those shoals. It was Brougham wh o spok e th e darin g word s i n defens e o f Quee n Caroline before th e House o f Lords which fo r years have been a beacon to the bar and a battleground. I once before [h e said] took leave to remind your lordships,—whic h was unnecessary, but ther e ar e many whom i t ma y be needfu l t o remind,—that a n advocate , by the sacre d dut y which h e owes his client, knows, in the discharge of that office , but on e person i n th e

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world, That Client And None Other. To save that client by all expedient means,—to protect that client at all hazards and costs to all others, an d amon g other s t o himself,—i s th e highes t an d mos t unquestioned o f his duties; and he must not regard the alarm—th e suffering—the torment—th e destruction—whic h h e ma y brin g upon an y other. Nay, separating eve n the dutie s o f a patriot fro m those of an advocate, and castin g them, if need be, to the wind, he must go on reckless of the consequences, if his fate it should unhappily be, to involve his country in confusion fo r his client's protection! To any armchair detractor s I would point ou t that Brougham was arguing (a ) befor e th e Hous e o f Lords , (b ) i n a monarchy, an d (c ) wa s no t engaging i n rhetori c bu t wa s in fac t makin g a threat tha t i f i t shoul d become necessar y he would hav e no hesitanc y i n exposin g th e privat e conduct o f his Sovereign. To him it must have been apparent that he was representing not only a wife but a queen, whose royalt y might no t surviv e the confusio n o f he r country. And he knew too that he was an Officer o f the Kings' Courts. However, Brougha m wa s als o a good advocat e an d th e shor t quota tion, a s jus t give n an d a s usuall y give n need s t o b e pu t i n context , Brougham was shifting t o the tribunal the risk of putting the country in confusion claimin g he had the materials to support a case in recrimina tion against his client's illustrious husband . But [he said], I am not reduced to this painful necessity. I feel that if I were to touch this branch of the Case now, until any event shall afterwards shew that unhappily I am deceiving myself—I fee l that if I were now to approach the great subject of recrimination, I should seem to give up the higher ground of innocence on which I rest my cause. (Dec. 8,1980, Association o f the Bar of the City of New York, 1981) The great thing about th e practice o f law, whether makin g instant deci sions o n you r fee t i n a tria l o r makin g lega l o r ethica l decision s wit h plenty o f time , is that ther e ar e alway s competin g demand s an d loyalties . The primar y dut y t o one' s clien t o r t o an y othe r singl e goo d i s alway s hedged about . Two crises of behavior confronte d m e while I was still an associate . The first involve d a n antitrus t matter . On e afternoo n I was aske d int o To m Kiernan's offic e i n th e northeas t corne r o f th e twenty-fift h floor, a larg e

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room afterward occupie d by Chester Bordeau and, for some years, by me. Tom had with him two executives of a Carolina furnitur e manufacture r and their local counsel, who were considering retaining White & Case in connection with the dismissal of a furniture outle t in New York because of perceived dishonesty , lack of sales, and financial instability leading to the "footballing" of their product. "Footballing" was the practice of drastically reducing prices on the goods of a well-known manufacture r fo r th e purpose o f luring customers int o the store. The footballed item s migh t turn out to be advertised but not in stock, as in the story, "If I didn't have any gefilte fish, I'd be selling them for twenty-five cents a pound, too." The law held tha t a manufacturer could , actin g unilaterally , discontinu e a retailer who footballed it s goods if the manufacturer acte d solel y on it s own. At that time it was at least an uphill task to convince the trier of fact that an y manufacturer eve r acted on its own. Tom explained this state of the law. The local counsel then produced the original of a letter that the northeast sale s vice presiden t ha d writte n t o th e hom e offic e som e month s before th e dismissal, simply saying several distributors o f the furnitur e had complained loudly that the products were being sold by the dismissed store at heavy discounts. Tom said the letter, if discovered in their files in a lawsuit, could be construed as part of an agreement to dismiss this outlet. Any such agreement, if found t o exist, would be under th e law a per se violation of the antitrust laws and lead to liability, treble damages, and the imposition of counsel fees. For some reason, the way Tom said "if discovered in their files" seemed to me to sound like a suggestion that if the letter should disappea r i t couldn't "be discovered." I didn't know Tom well enough t o know he could no t hav e meant an y such thing, but th e Car olinians took the original letter away with them and left th e files with us. Two carbons of the letter about the other distributors remained in the file. I was so uneasy that I did a foolish thing ; I took on e o f the carbon s home to Gladstone with me and squirreled it away in a bottom drawer of a desk in our living room. My idea of what I would do was not clearly formulated, but someho w I felt tha t i f I saved that copy , then I could kee p White & Case from ever being accused of complicity in the destruction of a document. Of course, what I should have done was to have had the guts to disclose my thoughts to Tom and, in the event (impossibl e in the light

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of hindsight) that he ignored me, to discuss the course of action with Tom and the Colonel. It turned out all right. One of the officers had gone so far as to tear the letter in two but had thought better an d kept it. Down th e line the dismissed distributo r testifie d tha t he had complaine d t o head quarters and the vice president ther e had rea d him a letter showin g th e New York manager had agreed with complaining distributors to fire him. This testimony allowed us forcefully t o point ou t that th e letter sai d n o such thing; it simply recorded the fact that other distributors had brought the putative facts to the attention o f headquarters so they could make an independent, an d hence arguable , legal decision. I restored m y secon d carbon to its place in the file and said nothing. A lesson I should have learned from thi s experience took a good many more years to sin k in: never assum e peopl e alread y know that yo u ar e honest an d moral . You have to spel l it out . Tom was telling this clien t about th e law and practical consequence s o f going to court i n this case. Hence, he naturally reported that the letter would show up in the discovery process, and i n formulating th e strateg y of making a settlement o r going to court, the letter was a real factor t o take into account. It did no t occur to him to say to a lawyer who had brought these intelligent business people to us , "Don't destro y unfavorable documents ; not onl y is it dishonest, but a destroyed document is more damaging than the real thing." I should have trusted Tom. A secon d crisi s occurre d whe n I wa s i n Geneva . Lione l Heald , Churchill's forme r attorne y genera l wh o wa s acting fo r Saud i Arabia , made a representation t o th e tribuna l tha t som e agreemen t ha d bee n reached in a meeting between a representative of Aramco and a minister of the Saudi government. We had a memorandum of that meeting written immediately afterward, showin g conclusively that Sir Lionel was, to put it politely, utterly mistaken. I located the memorandum in our files and gave it to George Ray, Aramco's general counsel. Unfortunately, the memorandum, totall y gratuitousl y an d irrelevantly , ha d a paragrap h tha t sai d something derogatory about the minister. We prepared papers to produce a cop y o f th e memorandu m t o th e tribunal . I prepared a copy o f th e memorandum wit h fou r dot s where the offending paragrap h ha d been . Lowell and Georg e said we should leav e out th e four dots . I responde d that I believe d tha t woul d no t b e acceptabl e conduc t fo r Ne w Yor k

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lawyers. They countered tha t i t was the only practical thing to do, since the dots would onl y lead to controversy and the eventual production o f the paragraph. I said if we weren't willing to take that risk we would forg o the advantage of the memo an d merely deny Heald's assertion, leaving it unproven o n the record. Lowell said that in a Geneva arbitration a statement by the former attorne y general could not be so easily dismissed. It was a great unkindness to the minister to include these totally irrelevant remarks. They were not material to any issue in the lawsuit, and we were not necessarily to be governed by what would be considered appropriat e by a New York court; we were before a n Internationa l Arbitration Tri bunal, which would no t b e upset, if they knew of it, by a simple ac t of courtesy. I said that eve n by the rules of decent scholarship, an omissio n could not be made without indication . We spent a n afternoon arguing . I was polit e bu t woul d no t alte r m y opinion . Nobod y mentione d wha t might happen if the impasse went unresolved. George Ra y finally suggeste d I consul t Spik e Spurlock , th e Rhode s scholar whom I admired so much for keeping his Nebraska twang and his off-the-rack suits , to se e i f Spike , with hi s reputatio n fo r unshakabl e integrity, could convince me the proposed cours e was not dishonorable . Spike, associate general counsel of Aramco an d a lawyer out o f Pillsbur y Madison & Sutro in San Francisco, had spent many years in Saudi Arabia. Spike and I discussed the issue of the dots at length. No one had ever suggested that it was not an issue or even an easy choice. My first point, afte r the simple issue of accuracy, was that th e tribunal would no t allo w any inquiry into what was behind th e dots. Spike immediately agree d wit h that but countered that that was not the problem; outside the arbitration , back at headquarters, the minister would want to know what was omitted from th e record of a meeting with him. Spike assured me that the practical result o f that deman d woul d be the production o f the full memo . It would have no effect on e way or the other on the outcome of the arbitration an d woul d neve r surfac e i n th e arbitration . Bu t i t woul d caus e extreme embarrassmen t t o th e ministe r an d perhap s en d th e author' s career i n overseas management i n the oil industry. Spike suggested tha t since the issue was one of relationships outside of any effect o n the arbitration, I should g o along with management's decisio n not to insert th e dots. Spike reiterated tha t Georg e and Lowel l were experienced lawyer s

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with impeccabl e ethica l standards , an d unde r th e circumstances , i n a close call of a judgment question, I should yield to their more experienced decision and not unnecessarily cause the human problems that would follow from m y proposed cours e of action. After thinkin g i t over, I agreed that th e argumen t shoul d en d an d th e decisio n o f th e senio r lawyer s should prevail. I did not feel it necessary to ask to be taken off the matter or resign from the firm. Lowell did not congratulate me on my discretion nor praise me for having held out so long on an ethical issue, but he did not bear a grudge and never mentioned th e personal slight implied in my yielding on a point of honor to an outsider rather than to a White & Case partner. For a man of Lowell's justified personal pride, this was an admirable reaction. From that point forward Lowell was, if anything, kinder and more thoughtful towar d me and my family. He delighted to repeat the answer my son Hal gave him to "And where are you going to college, young man?" "Harvard." "Oh, and why Harvard?" "Because Father says he will pay my tuition there." (Hal's academic path did not, in fact, lead through Harvard. He earned his doctorate in clinical psychology from Antioch. ) These decisions and others I had made as a young lawyer were part of my mental baggage when, much later, I became president of the New York State Ba r Associatio n an d debate d issue s o f eac h lawyer' s individua l responsibility under the code in relation to the view that "work must proceed an d responsibilit y fo r callin g clos e question s mus t res t wit h th e lawyer ultimately responsible," as Wolfrom pu t it , "for assurin g that th e client is competently represented." It was in 198 2 that I became president-elect o f the New York State Bar Association (NYSBA ) an d ex-offici o chai r o f its House o f Delegates. A year earlier Henr y Miller, later als o a president NYSBA , and I had per suaded that remarkable body to go on record in support o f the report of Action Unit Number Four , which I had chaired. That report cam e out in favor o f Court Merger and Merit Selection. Those capitalized code words stand for taking the crazy quilt of courts provided for in the judiciary article of the New York State constitution an d boiling them down to a single trial-level court with full jurisdiction. Right now, only the state Suprem e

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Court, our cour t o f original jurisdiction, has full powers . The Appellate Divisions for m par t o f th e Suprem e Cour t an d als o hav e al l judicia l power, but our "highest" court, the Court of Appeals, is a court of limited jurisdiction an d has only certain appellate functions, althoug h in the last constitutional amendmen t i t achieved more administrative power s over the court system. Its function i s to settle the law in New York. The Family Court, th e Civi l Court i n New York City, and th e Distric t an d Count y Courts elsewhere , al l hav e limit s o n wha t the y ca n do . As one conse quence, litigants frequently fin d tha t they are in the wrong court. Moreover, th e Famil y Court , fo r example , whic h ca n dea l wit h th e mos t important issues , such as termination o f parental rights, is paid less and has poorer quarters and less staff than the Supreme Court. Merit Selectio n ca n be variously defined, bu t basically it calls for th e appointment rather than the election of judges. Elected judges in the trial courts of New York City and elsewhere in the state are not picked by the electorate but by the bosses of the majority politica l party in the count y because the electorate has no idea who the nominees are and the Democrats are elected in the city and th e Republicans i n Republican counties . The better models of merit selection provide for a nominating commis sion that would select a limited number o f persons for eac h vacancy and submit thos e name s t o th e appointin g authority . Tha t authorit y the n would have to pick from preselecte d excellent candidates. Action Unit Number Four was lucky to be accorded a reporter, that is, a skilled lawyer paid a modest honorariu m t o write the report unde r th e guidance o f the Task Force members, who remained responsibl e fo r th e content. Bob Iseman excelle d as the reporter. He did such a brilliant jo b that the report has remained the position of the New York State Bar Association for more than a dozen years. Henry Miller and I worked out a strategy for the floor o f the House of the NYSBA, selecting lawyers to speak briefly on different issues . We had a pretty good sense of where the opposition lay and by whom an d by what arguments it could be overcome. We bolstered our argument by pointing out that if you once merged courts, some of which were elected and some of which were appointed, you then had to do something about the selection process, and i f you merged court s that were elected countywide o r were appointed by the governor o f the whole state with court s that ha d

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previously been appointe d b y mayors o r othe r municipa l officers , yo u needed t o preserv e som e balanc e o f politica l power . Meri t selectio n seemed not onl y good on its merits, but als o the best way of sorting ou t those practical problems. This factor helped convince some of the "rural" delegates from les s populous counties where the judicial candidates were, in fact, known to the electorate. At a meeting of the House after th e favorable vote , I made a presentation to Bob Iseman of Brougham's famous speec h on the state of the law delivered in March 1828 . That speech caused the appointment o f a royal commission and , ultimately, the great reform s o f the law of England i n the late 1840s . I recited an abbreviated version o f the great peroration o f that speech , which has been, through th e years, the clarion cal l of thos e dedicated to improvement of the law. The course is clear before us ; the race is glorious to run. You have the power o f sendin g your nam e dow n throug h al l times, illustrated b y deeds of higher fame , and mor e useful import , than eve r were don e within these walls. You saw the greatest warrior of the age—conqueror of Italy—humble r o f Germany—terro r o f th e North—sa w hi m account all his matchless victories poor, compared with the triumph you are now in a condition to win—saw him contemn the fickleness of Fortune, while, in despite of her, he could pronounce his memorable boast, "I shall go down to posterity with the Code in my hand!" You have vanquished him in the field; strive now to rival him in the sacred arts of peace! (House of Lords, March 6, 1838, London, James Ridgway and Sons, 1838) In 198 2 and 1983 , as chair of the House, I rejoiced i n working on th e report o f Frank Rosiny's committee on the Model Rules and on the position tha t the delegates of the NYSBA should take in the House of Delegates of the American Ba r Association. New York had more lawyers than any other stat e except California , an d i n my view New York is both th e financial and the law center o f the country. Furthermore, it is neither a s plagued by graft a s Illinois nor as "laid back" as California. Moreover, the New York State Bar Association i s ideally composed t o speak responsibl y for the bar. Its House of Delegates has delegates elected from al l over the Empire State. Big-city lawyers in Rochester, Buffalo, Albany, and Syracuse don't ge t swept up in the same currents that Ne w York City lawyers do.

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Indeed, Brooklyn lawyers sometimes boast o f a populist, down-to-eart h point o f view not shared , they say, by elitist liberals in Manhattan. Th e excellent lawyers in the less populous countie s ar e not swep t up by any city fads. The House in 198 3 had just under tw o hundred members , not all of whom attended , and a legislative body of an ideal size, not swaye d by party or geographica l blocks. Its views were to be taken seriousl y in developing the position of the American Bar. The differences betwee n the Model Rules and the Rosiny recommendations struc k m e a s profound, numerous , an d sometime s subtle . The y included, of course, client confidences an d secrets, the scope of client loyalty in conflic t situations , the interpla y o f responsibilit y o f senio r an d junior lawyers in large organizations, and questions of format that related in part to the gloss put on the code by years of work by ethics committees. Joe Reilly, then president , and Bill Carroll and John Williamson, who lead the excellent staff o f the association, and I put together a format fo r getting thes e issue s i n manageabl e form . Th e focused , well-mannere d debate led to a series of votes, which recorded the position of the association wit h remarkabl e clarity . Despit e th e fac t tha t Augus t shoul d b e reserved for family , I went as a delegate to the 198 3 meeting of the ABA House of Delegates in New Orleans. During the debate on confidentiality , I spoke two or three times and, without modesty , I am quite convince d that b y insisting tha t on e could , if necessary , "resign wit h a bang" but under n o circumstance s us e client confidence s "t o sho w which way the fox ran," I influenced the vote in favor of rejecting the Model Rule diluting confidentiality. The ABA did just that. The drafters o f the Model Rules, in their zeal to overturn the rule prohibiting a lawyer from revealin g a client's fraud whe n the information i s protected as a confidence o r a secret, expanded the concept of confidenc e in orde r t o mak e th e protectio n ridiculous . Even before I went t o la w school, my grandfather ha d talke d abou t lawyer s an d clients : telling a would-be assailant that a person could be arrested for carrying a six-inch knife i n the subway but tha t a five-inch one would no t qualif y a s a concealed weapon was his favorite exampl e of what lawyers should not do. It formed par t of the basis for my conventional view that conversations that occurred with an obvious criminal act in view did not qualify as communications with a lawyer subject t o the protection o f clients' confidence s

194 / Servic e an d Professiona l Responsibilit y

and secrets. They simply were not lawyer-client confidences to begin with, that is, not information "obtained in the professional relationship. " Fortunately, the District o f Columbia an d New York State courts have endorsed versions of lawyer confidentiality rules that are more effective i n preserving clien t confidence s tha n th e Model Rules. Moreover, the New York Code follows the old formula, preserving the years of lawyer input. While I was still in my fifties,alawyers' lunch group that met every Friday at a round tabl e in a private room a t the Recess Club invited m e to join. Include d a t th e beginnin g wer e Orison , Roge r Blough , Whitne y North Seymour , Jac k McCloy , Morris Hadley , Willie Chandler , Chic k Belknap, Herb Brownell , Lloyd Garrison, and Cyru s Vance. The grou p had onl y on e rule : No on e wa s allowe d t o say , "You've tol d tha t stor y before." And what stories they were: McCloy alone at the War Department getting the news of Pearl Harbor, Morris Hadley's father a t the Kaiser' s table identifying win e from on e of his private vineyards, and Roger confronting Presiden t Kennedy. Herb Brownell never told a story, even about advising Ike (unless it was relevant to some topic we were discussing). We directed th e affairs o f the day, international, artistic, and political , in an aur a of confidentiality an d camaraderi e that I seldom found , eve n among my partners. Our lunch tradition continue s today with member s including Roger Oresman, Bob Fiske, Jack Irwin, Leon Silverman, Powell Pierpont, Mik e Seymour, Bill Jackson, Ted Clark, and a host o f other s who have served the public o r the bar with fidelity. A somewhat large r group meet s on Thursdays once a month, until recently under the leadership of Conrad Harper , who later became legal counsel to the Depart ment of State. It was my glory that I had such friends .

EPILOGUE

After m y sixty-fifth birthday , by the term s o f th e firm agreement , fo r which I had had som e responsibility, my percentage of profits bega n t o decline and I started t o turn ove r all my matters to others. My practice soon dwindle d t o a few small family matter s an d a helping hand fo r a friend. This was what, in the vigor of my youth, I had thought appropri ate. Certainly, I was too old to do important tria l work any longer: my memory, reflexes , kee n eyesight , an d acut e hearin g wer e somewha t dimmed. Lawyers occasionally dropped b y to see k my advice, but wit h insufficient frequenc y t o satisf y m y ego . Fortunately , servic e o n th e boards o f nonprofit group s kept me involved an d gav e me a chance t o continue learning. One of those was St. Barnabas Hospital . I watched i t stay afloat an d then prospe r i n a low-income are a of the Bron x despite the continua l retrenchment an d restrictions of third-party payors. The credit belongs to Ronal d Gade , M.D., our super b hospita l president, and th e team h e was able to assemble and inspire. My work for Victoria Foundation, which is funded b y the Chubb fam ily, gave me an insight into the workings of Newark and the problems of education, poverty, and rejuvenation i n the inner city . It also taught m e how committe e structur e ca n involv e th e normall y dorman t skill s o f board members , a lesson Bo b McCrate was able to transfer t o the New York State Bar Foundation. For the profession I worked with the National Center for Stat e Courts and the Fund for Modern Courts, seeking to streamline the court process, 195

196 / Epilogu e

but increasing pressures to "lock 'em up and throw away the key" diverted too many resources to prosecution an d prison. Mandatory sentences and guidelines together with out-of-contro l proliferatio n o f pretrial maneu vering in civil cases have drastically reduced th e number o f actual trials without muc h reducin g trial delays. I encountered th e same problems as chair of the Council on Judicial Administration a t the Association o f the Bar. They remain intractable , but ther e are no lost causes because non e are permanently won. Chief Judge Lawrence Cooke of our Court of Appeals appointed me to the Task Force on Women in the Courts, where I played skunk at the picnic to insure that all assumptions were backed by surveys or evidence. As our daughte r Priscill a says , I haven't learne d th e "N" word. As one job folded I took on another. So when the Task Force filed its report, I began service on the NYSBA Committee on Women in the Law. We mounted a floor fight against the matrimonial lawyers in the House of Delegates. We were in favor of legislating automatic child support provisions. We didn't get a majority in the House, but a vote that had to be counted by a show of hands was enough to neutralize bar opposition, and the child support bill became law. I also did a few lawyer chores for that wonderful institutio n the Women's Prison Association, which, among other goals, is battling to save the families of (often unnecessarily ) incarcerated mothers. The Legal Aid Society (my old love) and Volunteers for Lega l Services faced the Augean task in our hostile political climate of providing lawyers to those unable to afford the m o n their own. Don't look now, the worm may be turning! At the Pierpon t Morga n Librar y we were shor t o f bot h mone y an d space, and nea r th e en d o f my time a s president w e had t o find a new director, bu t w e kep t collectin g book s an d maste r drawings , an d I absorbed more learning than I ever expected possible. Because I gave a little money to New York University to stimulate contact between the English Department an d the Fales Library ( a rare book collection give n them by my father), Kak and I were encouraged t o get involved in lectures and other activities there. Passing a welfare offic e on e day near NYU, I was struck by the huma n misery. Once again I asked myself whether i t is wise or even possible to keep givin g time an d mone y t o cultur e an d educatio n whe n s o man y

Epilogue / 197

human beings need that money just to survive. My answer has been tha t we do need art and learning; private giving is the way to preserve them. Kak, too, has kept busy. She had been hea d o f the board o f the Ne w York City School Volunteer Program and was, of course, still on its board. She was also president of the board of the Home Care division of the Visiting Nurs e Servic e o f Ne w York an d o n it s executiv e committee . Sh e tutored mostl y six-year-olds wh o ha d no t caugh t o n ho w to read , at a school in Harlem every Tuesday and Thursday morning. Her love for children an d he r natura l talents , honed b y twenty-five year s o f stud y an d practice, made her adept. Her thrill when som e child learned to read, or when some more or less autistic child learned to open up and tell stories, or even when a shy or hostile youngster learned to accept affection an d sit in her lap, was wonderful t o witness. We kept a tiny New York apartment so that we could attend evening and early morning meetings three or fou r days a week. Our interests and activities intertwined. Having been caught up in the Canons of Ethics throughout my life as a lawyer, with a n increasing responsibility for th e subject a s managemen t duties came my way in the litigation department and then in the firm, and a passionate involvement through bar association work in the 1980s , I could not turn down Presiding Justice Francis T. Murphy's request to take on the job of chairman of the Departmental Disciplinary Committee (DDC). And so, shortly after I had been told in December 199 0 that my full retirement , which should have started at the end of 1989 , would actually take place on June 30,1991 (full retirement would mean I would no longer have a room of my own or full-time secretaria l help), the firm reversed that decision. The DD C provide d lot s o f work i n additio n t o m y duties a s special master a t th e Appellat e Division . The y ha d jus t change d th e rules , expanding fou r panel s of seve n eac h to seve n panels o f four . (W e now have nine panels.) Th e thirty members of the committee had to be reassigned and fitted together so that they could serve on the same days of the week. Several appeals from letter s of admonition an d of caution were by rule the duty of the chairman to decide and were waiting for me. I had to review matters to be forwarded t o the court with recommendation s fo r discipline and matter s being recommended b y the staff fo r prosecutio n before th e panels . Every one o f thes e matter s raise d seriou s question s involving the livelihood of exceptionally well-educated human beings.

198 / Epilogu e

It was also my duty to oversee the Office o f Court Administration Bud get, which recommended a n increase in our funding t o $1.4 million, and help decide on the strategy for lobbying the legislature in Albany to insure that increase at a time when the state budget was facing a deficit o f $6.5 billion. Our case was a good one, and we pressed it in Albany. The arguments that should have been persuasive for the DDC are that the mone y wa s there i n th e Lawyer s Registration Fund . With a recen t twofold increase, there was more than enough! Service professions such as the bar are essential to the economy of New York State and New York City. Every industrial state in the union spend s more per capita and more per lawyer o n disciplin e tha n Ne w York, which rival s Mississippi i n parsi mony. About half the lawyers in the state, over fifty thousand, practice in the First Department. Governor Cuomo's answer to all requests for increased expenditures of any kind al l during hi s tenure has been, "Show me where I can ge t th e money and I'll do it." We felt we had done so. But New York State, in the budget year 1990-91 , was in bad shape. The budget fo r that year simply placed th e increase d mone y i n th e Genera l Fun d instea d o f i n th e Lawyers' Registration Fund . We tried to make sure that this did not happen again. We found out , however, that every special fund ove r which the legislature had authorit y had similarl y been transferred t o the Genera l Fund. We have inched ahead since. The struggle goes on; I have learned a lot in the trenches. Although Ka k and I remained active , I missed the spur of client problems and the excitement of trial work. I had taken to drinking more in the evenings and on weekends. During all the years of trial work I did drin k sometimes more than m y share, but now alcoholism seemed to descend . For a time I gave up hard liquor, taking only wine and beer. This worked fine whil e w e were o n trip s abroa d o r goin g ou t t o dinner , bu t alon e around the farm I got into the habit of stopping by the liquor cupboard to sneak a nip. Kak got to asking me not to, and I would promise and the n deny. In earl y 1993 , after som e fifty-five years of drinkin g to o much , I finally realize d that I had become an alcoholic and got help. It is wonderful t o n o longe r b e boun d b y my recentl y acquire d habi t o f sneakin g drinks. Some other things, too, have gotten better. When, in the early eighties, I

Epilogue/199

first attende d a meeting of the chairs of sections and important commit tees of the New York State Bar Association, I spoke to the fact that ther e were onl y white peopl e an d tw o women present . Ten years later, Arch Murray was president. I followed his wife, Kay, as president of the Columbia Law School Association. However, these advances at the top have been overshadowed b y the more-than-benign neglec t o f all American cities , and especiall y neighborhoods , followin g th e "Wa r o n Poverty " o f th e Johnson administration . The disadvantaged have gotten more so, a view of mine reinforced a t Union Theologica l Seminar y with its emphasis o n the social gospel and the theologies of the excluded. Court work is not entirel y behind me . In 199 3 the Appellate Divisio n assigned m e an appea l fo r a client convicte d o f selling more than fou r ounces of cocaine and of possessing drug paraphernalia, more packets of cocaine, and more than ten thousand dollars cash proceeds of sales. Both the prisoner and his aunt wanted to help. His aunt volunteered to pay for the copies of the transcript o f the testimony of the trial, and I found th e maturity to let her do so. Cyrus Benson, a young trial lawyer in the office, started out helping me on the case, and eventually he wrote the brief and argued the appeal. The police ha d entere d wha t turne d ou t t o b e a rooming house , but wha t looked like a single-family clapboard dwelling on a Bronx side street, with guns drawn an d without a warrant. Their stor y of a dark-skinned ma n whom they saw buy the drugs and then brush past two armed policeme n and leap out a kitchen window, where three or four cop s were standin g around, without being seen was, as the court found, incredible as a matter of law. The trial judge had done her best to derail, and had severely limited, cross-examination. One of the Appellate Division panel members on the case told me after it was all over that the initial vote had been to affir m the convictio n bu t tha t hi s dissen t ha d finally become th e unanimou s opinion o f the court. The final opinion no t onl y reversed the convictio n but als o dismissed the indictment s o that the prisoner was set free with out the threat of a new trial. The possibility for more such cases lurks. The struggle is not in vain. New York still has the best of the old ethics code of the bar. Legal Aid and th e federal Lega l Assistance Corporatio n are still alive. The scent of battle fills the air and all things work together.

200 / Epilogu e

The teaching of the National Center fo r Stat e Courts' that the judicial climate controls the speed with which case s are tried has influenced m y attempts t o administer th e Departmental Disciplinar y Committee . The substance o f attorne y discipline , neglect , failur e t o respec t escro w accounts, and breaches of faith an d loyalty, have enlivened participatio n in law school planning. Can we send well-trained lawyers out into general practice? Are hospital questions (suc h as, should the primary-care docto r provide the gateway to the specialist?) relevant to law school? Is providing volunteer lawyers to serve the poor relevant ? Does reversing the conviction o f a person convicte d o f drug possession constitut e "visiting me in prison?" Does helping the Women's Prison Association? Doe s it make a difference on e way or another that I do these things for my own satisfac tion and fun an d not from a sense of duty? New challenges keep springing up. Arch Murray recently requested that I chair a New York State Bar Association Tas k Force on th e Profession . Our mandat e was roughly to explai n what is currently wrong with th e profession an d to recommend wha t th e association shoul d d o about it . We were given six months to report to the House of Delegates. It gave me the chance to repeat lines I came across somewhere i n law school: "It is oath-breach, faith breach, love breach, / That brings the invaders into the estuary" and to quote what my Appellate Division said in 1994 , that law is "a profession whose stock in trade has to be integrity." No matter how you slice them, integrity and loyalty are the bedrock of the profession, and service is what we are all about. I was back on the floor of the House. "cHa, Ha,' among the trumpets." The House passed most , but far from all , of our recommendations. Finally, in the sixth and (b y rule) last year of my work on the Disciplinary Committee, the Century Association elected me its president. I have experienced the hourglass shape of a lawyer's career from gener alist to specialist and back to generalist. Although we live in a world where the big fish eat the little fish, and I have not yet understood the problem of evil, the strands of my life in the law seem to be forming a n almost discernible pattern, into which Saint Luke's Church weaves primary colors. Besides all this, Kak and I have five fine, useful children , eight wonderful grandchildren , lot s o f friends , a farm i n Ne w Jersey , our hous e i n Maine, and Haven, our boat. We don't expect to get bored for some time.

Epilogue/201

We just pray for goo d health until the day when, like the wonderful one horse shay, we fall apar t al l at once. We hope to leave behind som e little unremembered acts of kindness and of love. The law has provided us with a good living and a full life . Kak and I are having fun an d have as much chance as the next couple to come clear-eyed and laughing to the tomb.

INDEX WITH REFERENCE S T O ETHICA L STANDARD S

Canon an d E C refer t o NYSBA , The Lawye r s Code of Professional Responsibility. DR refers to Part 1200 , Title 22 , NYCRR, Suprem e Court , Appellate Division , Al l Departments . Canon s (1908) refer s t o AB A Canon s o f Professiona l Ethics. Model Rule refers to ABA Model Rules of Professional of Conduct. accountants company auditor privilege, 145 duties, 18 fraud, 18-2 0 liability to third parties, 18,147 reckless versus negligent, 18 accounting, see also auditing accountants, 103 estimates, 118 financial health, 118 learning curve, 103-104 percentage of completion, 103 standard system, 95 Adams, Henry, 110 advance technology, 157 Agricultural Adjustment Administration (AAA), 32 aircraft Boeing, 105 DC 3s, 8s, 9s, 10s, 102-109 Alabaster, USS, 3, 10,107,163,181 Allegheny Corporation, 28-30 Allis Chalmers, 123-143 Aloha (yacht), 28 ambulatory power, 46

American Bar Association (ABA), 24,84,97, 169,170,182,192,193 American Brake Shoe, 52 American Lawyer, The, 178 American Law Institute (ALI), 121 American Society of Mechanical Engineers (ASME), 128 American Stock Exchange, 101 antitrust law antitrust authorities, 72 antitrust policy, 72 Chicago School, 60 Clayton Act Section 8,1-5,150 division of territory, 61 duty to share information, 61-6 2 "failing company" doctrine, 106 Fairless one price policy, 55 foreign company , 72 foreign competition , 72 horizontal pricing, 61 litigation, 178 mergers, 106 perfect competition , 55 postwar Germany, 9 presidential power to limit imports, 71-72 pricing agreement, talk, 56 complex, 55 criminal offense, 55 fungible products, 58 identical, 55-56 influences to uniformity, 56 opportunity to meet, 55 perfect competition , 55

203

204 / Inde x

antitrust law—cont. phosphate, 56 point of delivery, 61 standard of proof, 55 steel investigation, 54 steel pricing, 55-73 base price, 55 extras, 55-56 wheels, 61-64 temptation to shift blame to higher level, 64-65 three strands circumstantial evidence, 56 prior efforts t o enter market, 72 risks of meeting, 182 Robinson Patman Act, 55-56,61 Appellate Courts limited jurisdiction, 50 no partial appeals, federal courts, 95,117 oral argument, 49 Appleton, Rice & Perrin, 176 Aramco, 188,189 Armstrong, Neil, 155 Arnold, Lyndon (Chic), 12 Arnold & Porter, 71 Arnold, Thurman, 86 Arps, Leslie, 46-50 Arthur Young & Company, 145-149,17 4 associates, 41,179 Association of the Bar of the City of New York, 24-26,186 Admissions Committee, 24-25 Passport Committee, 26 auditing accounting standards, 145 "comfort letter, " 165 integrity of underlying figures, 168 liability, 19 Austin, David, 94

public service corporations, 7,73 railroad reorganization, 9,16,73-76 regulatory agencies, 7 barristers, 67 Barton, Edward E., 51 basic oxygen furnaces, 80 oxygen lances, 80 Beck, Robert, 184-186 Beecher v. Able, 114,11 7 374 F. Supp. 341 435 F. Supp. 397 Bekins boxes, 147 Bennett, Joseph A., 10 Benson, Cyrus, III, 191 Berkowitz, Boris, 146 Bicks, Robert, 57,66-67, 73 Biggins, Art, 98 billing, see law firm managemen t blast furnance, 78-83 Block, Robert, 109-111 Blough, Roger M., 54-55,93,102,154,174, 180-184,194 bobtail chart, 90 bonds bail, 53 indemnity, 43 Bonsai, Dudley B., 120 Bordeau, Chester, 27,33,37-39,43-45,50,18 7 Bork, Robert, 60-61 Boudin, Leonard, 25 Bretton Woods Agreement, 44 Brice, Stanley C, 10 7 Bricker Amendment, 12 Brougham, H. L., 185 Burr, George, 28-30 Business Roundtable, 154,180-18 5 Construction Committee , 176 Business Week, 1

Backus, Dana C, 12-1 3 bank deposits third party demands, 43 Bankers Trust Company, 16,27,41 Bankers Trust v. Mendes, 20,27 Bankers Trusty Solicitor v., 43-45 Bankers Trust, application of Spitzmuller, 45-50 bankruptcy creditors rights, 16-20 equity receivership, 73-76 fees, time records, 9 generally, 133 lawyers' fees, 16

Caldwell Clements, Inc., 1-5,31-38 Cardozo, Benjamin, 33 Case, George B., 10,13,27, 179 certiorari jurisdiction, 159 petition for certiorari, 159 standards for denial, 30 Chambliss family, 139 Cheney, Richard E., 151 Chicago Law School, 58 Chubb, Percy, II, 13-16,17 3 ClairtonCoke,79,91 class actions counsel fees, 106,119,208-21 3

Index / 205

litigation committees, 144 settlement, 118-12 0 stockholder suits, 144 stock options, 121 suit withdrawn, 120 true, hybrid, spurious, 120 Clements, Maurice, 1- 5 clients control over, 164 Clockmaker, The (Haliburton, Thomas C. 1871), 109 coal washing plants, 80 Code of Professional Responsibility, see also ethics, 59,69-70 codefendants cross claims and insuranc e companies , 124 Cohallan, Dennis O'Leary, 47 Conn, Roy, 25-26 coke plants, 79 collateral estoppel, see res judicata Collier Publishing Company, 39-43 Collier's magazine, 39 Columbia Law Library, 9 Columbia Law Review, 16,19,3 7 Columbia University Law School, 9-10,107 competence quality/quantity DR 6 101,13 compleat lawyer, 53,76 conflicts of laws, 8,9,47 choice of law, 47-50 different la w for different aspects , 48-50 Conger, Edward A., 16 Constitution, 76 separation of powers, 147 construction nonunion, 176-17 7 training, 176-17 7 union labor, 176-177 Construction User's Anti-Inflation Roundtable, 181 Consumers Union, 70-71 contempt of court court orders, 34 lawyers' conduct, 111 Conwell, William D., 5,72 Cooke, John, 1- 3 Cooke, Lawrence, 196 Corbin, Arthur, 29-30 corporate governance, 121 corporations claims against other corporations, 59

class actions, 50,121 cumulative voting, 8 going public, 27 piercing the veil, 8 providing witnesses for other corporations, 84-86 Corry, Charles, 92,154,155 Cothay v. Sydenham (2 Bro. C.C.), 46 courtesy, 25,177 court merger, 190-191 court merit section, 190-19 2 courts Civil Court, NYC, 34,191 Court of Special Sessions, 53 District and County Courts, 191 Family Court, 191 Federal Courts, 117 New York Court of Appeals, 29,37,49,50, 191 jurisdiction, 50 limited powers, 37,50,191 Supreme Court of the State of New York Appellate Division, First Department, 49-50,191 Appellate Division, Second Department, 54 Supreme Court, New York County, 17-20, 22,24,37-39,45-47 New York Court of Special Sessions, 53 Supreme Court of the United States, 12,30, 61,71,88,158,159 U.S. Circuit Court of Appeals jurisdiction, 62 for the Second Circuit, 30,62,68,86,91, 97,99,117,120,169 for the Third Circuit, 69,159 for the Sixth Circuit, 159 U.S. District Court for the Western District of Pennsylvania, 68 U.S. District Court for the District of Columbia, 70,169 U.S. District Court for the Southern District of Georgia, 74 U.S. District Court for the Southern Distric t of New York, 1,16,29,30,31-33,56-62, 91-98,105-120 U.S. District Court Southern District of Ohio, 153 U.S. District Court for the Southern District of Tennessee, 74,125 Covington & Burling, 166 Crabtree v. Elizabeth Arden, 29 cross examination, 89,97,129-13 7 Cuomo, Mario, 198

206 / Inde x

damages damnum absque injuria, 29 expert testimony, 116 market is right, 115 value, willing buyer willing seller, 116 weakness to discuss before juries, 158 Davis, Polk &Wardwell, 123 Dawes Plan, 9 death duties (British), 45 Declaration of Independence, 44 Department of Justice, 106 Diary of a Country Parson, 110 directors duties, 152 discrimination against women, 174-17 5 Disney, Walt, 94 Doby, Allen A., 56,57, 58-59 Douglas Aircraft Company, 100-12 2 Douglas, Donald, Jr., 103,110-111 duff bag halyard, 110 Eastman Kodak, 34,51 Edelstein, David, 62-63 Eisenhower, Dwight D., 26 Emmet Marvin and Martin, 52 Emmet, Richard S., 49,51 Epley, Marion J., Ill, 164 Ernst & Ernst, 20 ethics aggregate settlement DR 5-106,59 board of directors and corporations, 66 Canons (1908)1 0 choice of counsel DR 2-108 B., 32 client confidentialit y DR 4-101 C I . DR 7-102 B.I., 164-165,16 8 definitions of: Model Rule 1.6(a), 193-194 DR 4 101 A. Canons (1908) 37 confidences an d secrets, 10-15,193-19 4 DR4 10 1 DR7 102B.1 . clients not lawyers make decisions EC 7-8,9,86 EC 7-7,157 communication with jurors DR 7-108 B. EC 7-29,138 competence, 13,31 DR 6-101 EC 6-1

conflicts of interest, 70 double test, 70-71 DR 5 105 C. DR 5-101 A., 31 grand jury DR 5-105,65,93 organization as client, 65-66 EC 6-1,31 EC 9-286,31 contact with represented partie s DR 7-104 A.I., 182 criminal, 63-70 criminal conduct Canons (1908)37,19 4 disbursements, 160 duty to collect EC 5-8 duty of junior, 187-19 0 duty of superiors, 190 exceptions to DR 4 101 A.-D., 193-194 honesty, see also honesty (integrity), 4,6, 186-190,200 DR 1-102 A. DR 1-104 A. DR 7-102 A.5., see also Model Rule 5.2 illegal conduct, assist client in DR 7-102 A.7., DR 5-109., 66 individual responsibility, 59 DR 1-102 A. DR 1-104 A., see also Model Rule 5.2 jury, out of court communicatio n DR 7-108 B., 138 EC 7-29,36,3-4 model rules versus code, 192-194 oral commitments, 177 Canons(1908) 2 5 DR 7-101 A.2. DR 1-102 A.4. EC 7-38 professional responsibility , speaking about, 185 requirements of and exceptions to lawyer client confidence s "resign with a bang," 193 "show which way the fox ran," 193 restricting lawyers' rights to practice, 32 DR 2-108 B. right to lawyer of choice, 66 separate counsel, 66 speeches and examples, 185-186 subordinate lawyer DR 1-104, see also Model Rule 5.2,189 Thornberg memo, 70

Index / 20 7

witness, as counsel DR5 102A.B. , 1- 4 witness, interfering with availability DR 7-109 EC 7,13-14,27,85 Wolfram C . W., Modern Legal Ethics, 19 0 evidence administrative hearing, 41 admissions by coconspirators, 64 don't ask questions to which you don't know the answers, 64 hearsay, 40-41 shop book rule, 95 for jury, 3 lawyer-client privilege, 168 operation of someone else's mind, 63-64 questions, facts not in evidence, 111 "soft," 159 without jury, 93 facts but for, 78 concentrate on, 95 in evidence, 92 facts must be admissable, 95 importance of, 3,1 0 versus law, 39 primacy, 21 proximate cause, 78 reckless disregard, 19 as record in lawsuits, 47 standard of proof, 78 stipulation of facts, 33,47 tax cases' burden of proof, 82 fair trade litigation, 33-34 Fales, De Coursey (father), 9-10,13,100,196 Fales, Dorothy M. (mother), 10, 35,36,143 Fales, Haliburton (grandfather), 10 Fales, Katharine L. (Kak) (wife), 5,13-15, 35-37, 52,126,137,143,198,200-20 1 Farr, Simms C, 57 Fay, Charles J., 10 Federal Reserve Bank, 155 Federal Rules of Civil Procedure, 32 Federal Trade Commission (FTC), 32 jurisdiction of , 72 first names, 78-79 use of Flom, Joseph, 46-50,152 Foley, Adrian L., 8,9 foley scale (lawyer hours), 8 Fordham University, 58 Freedom to Travely 26

Freeman, Milton V., 172 Friendly, Henry J., 97 furnances open hearth, 139 oxygen, 140 Gade, Ronald, 195 Ganem, Ray, 96 gangue, 78,83 Gardenhire, Mrs., 138-142 Gelhorn, Walter, 10 General Electric, 34 generalist, 8,53,200 general practice General Motors, 17,28,43,58,84-86,93-94,15 0 general obligations law (NY), 44 Georgia and Florida Railroad Reorganization, 73-76 Geraci, Mrs., 37-39 Germany Tripartite Commission, 9 Gesell, Gerhard A., 71 Gifford,JohnA., 1 0 Gillespie, S. Hazard, 123, 125 Gillette Company, 45-50 Gloss on the Cod e o f Professiona l Responsibility, 19 3 Goodrich, B.F., 151 grand jury, 65-66 immunity problem, 66-67 minutes, 62 persons under some suspicion, 67 targets, 65-67 Graney, Mike, 181 Greek, 82, 83,128 Gropper, Allan L., 76 Grubin,Sharon, 111 , 116,123-161 Guerard, Albert, Jr., 128 Haberkorn, Roy, 146 Haithe, Madison, 116 Hamilton, Rayner M., 80 Harper, Conrad, 194 Hartfield, David, 18,27, 30, 39-43,163,169, 173,174 Hartfield, Joseph M. (Colonel), 8,9,10,12,13, 14,18,27,30,51,52,53,73,163,174,175,188 Hatch, Vermont, 11,12,13,18-20,2 7 Haudek, William E., 109 Haven (sloop), 149 Heald, Sir Lionel, 188 Heatwole,Gus, 64, 71,123,125,126,139,141, 143,149,151,157

208 / Inde x

Henry the V and VI, 111 Heuston, Alfred, 7 Hill &Knowlton, 151 Hogan, Father, 58 Hoguet, Laura B., 176 Holmes, Oliver Wendell, Jr., 33,180 Holwell, Richard F., 158 honesty (integrity), 4,6 is the best policy, 67-68 corporate loyalty and integrity, 122 lawyers' duty, 177,186-20 0 DR 1-102, A.4., 200 DR 7-102 A. necessity to spell out, 188 oral commitments, 177 Canons (1908) 25 DR 7-101 A.l. DR 1-102 A.4. EC 7-38 preserving or destroying evidence, 186 DR 1-10 4 DR 7-102 A.3. DR 9-101 EC 9-6 scrupulous regard for the truth, 10 Hoogstra, 58, 84-86,94 hourglass, 8,200 Hughes Tool Company, 110 Hurlock, James B., 174-175,17 8 IBM, 63 inflation, 176,180-18 1 wage escalation, 183 interest rates inflation effec t on , 155 prime rate, 155 Internal Revenue Service (IRS), 74-75,78,84-99 interstate insurance, 165 intervivos trust conflict o f laws, 47 misdelivery of trust assets, 45 power to sell, 45-49 investment banking, 27,41,153,15 5 Iseman, Robert, 192 James, Arthur Curtis, 28 James, David, 147 James Foundation, 28-30 Jenks, Stephen M., 86-92 Johnson, Glover, 13 Johnson, Lyndon B., 102,107 Johnston, John M., 48

judicial conduct ex parte dealings, 74 July, Herbert F., 6,7,9,11-15,73-74 jurors contacts, see ethics damages, effect o n merits of proving, 158 post-trial interviews, 4,158 reaction, 139 selection of (voir dire), 1-2,34 jury versus bench trial, 5 opening, 2-3 time saved, 5 verdict finality, 4,39 jury trial, 125,142,15 4 versus bench trial, 5 charges, 142 deliberation, 141 special verdicts, 141 verdict finality, 4-5, 39,142 Kaufman, Irving, 62 Keifer-Stewart v. Seagrams, 15 8 Kennedy, John F., 54-55 Kennedy, Robert F., 55,75 Kiernan, Thomas, 11,12,33,57,180-18 7 Kinneary, Joseph, 150-151 Korean War excess profit tax, 77-91 Knox, William C, Jr., 13 Krash,Abe,71,172 labor apprenticeships, 183 nonunion labor, 182 open shop, 182 project agreement, 182 Ladd, William E., 36 Land, Emory Scott, 14 Law Clerk's Union #13,11-12 law firm management associate pay, 50,176 billing, 8,49, 75,176-17 7 business, 162 chairman, 163,17 5 competitive climate, 176 controlling lawyers' conduct, 178 counsel fees, 26,176-177 Canons (1908) 12 DR 2-106.A., B. international, 176-17 9 percentages, 162 reserves, 162

Index / 20 9

retirement plans, 162-163,19 5 scheduled overtime, 176 small bills, 49 time records, hours, 8-9,161,176 DR 6-101 A.2. EC 6 1- 5 young turks, 162 law practice budgets, 162 a business, 162 changes in, 178 compleat lawyer, 53,76 fame, the spur, 161 generalist, 53 lateral moves, 178 litigators, 53 money versus fun, 16 1 partner compensation, 162 not a popularity contest, 18 Law School, Columbia, 9-1 0 Kent Hall, 26,37,48 Law Review, Columbia, 16,3 7 lawyer, see also law practice bathtub mind, 89 boutique firms, 178 conduct, fair and courteous, 177 EC 7-38 duty as service, 177 good lawyer, 24 lost case, 24 moving from firm to firm, 178 picadors of trial practice, 53 reputation, 119 Leary, Thomas, 80,95,96 Lee, Robert E., 75-76 Legal Aid Society, 20-24,196-199 legal research, 6-10 Leslie, Albert Victor, 109 Levet, Richard H., 88 Levy, Matthew M., 33 libraries, 7 Fales Library, 196 Pierpont-Morgan Library , 183,196 limitations, statute of, 9 Lincoln, Abraham, 75 Links Club, 174,183 Lipton, Marty, 152 Litigation Department, 15,27,130,16 1 litigators, 53 Llewelyn, Karl, 10 Lockheed, 144-145 Lord, Bissell & Brook, 165,16 8

Lukens Steel Corporation, 123-14 3 MacArthur, Edward G., 12 MacNaughton, Donald T., 96,98 magnetic ore, 79-80 Maitland-Tennant, Mrs., 43-45 Malone, Ross, 84-86 Mannix, Henry, 53 Marathon Oil Company, 149-16 0 Marden, Orison S., 15,16,20,24,30-33,47-52 , 54, 80-86,94, 97,106,112,117,144, 161-163,169,194 Marden, Virginia, 52 marital roles, 35,175 sexual discrimination, 174-17 5 Marshall, John, 171 McCarthy, Joseph, 26 McCauley, Daniel J., 40 McCord, David, 128 McDonald, Willis, IV, 7 McDonnell Douglas, 100-12 2 McDonnell, J. S., Jr., 105 McDougal, Myers, 181 McGanney, Thomas, 130,15 8 McGraw-Hill, 1-5 , 30-3 3 McGraw, James, Jr., 31 McKay, Robert, 26 McLean, Edward C, 5 McLoughlin, Maurice E., 10,12,1 4 McNally,JohnJ., 152 mergers, 149-160,165-17 3 appraisal, 149 asset appraisals, 153 comfort letter , 165-167 disclosures, 149-160,165-17 3 grossly inadequate, 153 investment bankers' role, 152 litigation tax, 160 "lockups," 150-152 "poison-pill," 152 "put in play," 153 rules, 72,105 scorched earth, 72,105 standing to raise antitrust defense, 152 statutory merger, 150 stock versus cash, 150-153 tender offer, 151-15 3 "white knight," 152 migratory birds, 12 Miller, Henry, 191 Milligan, Melvin L., II, 29-30 Mintac Field, 80

2 1 0 / Inde x

Missouri Pacific Railroad, 28-30 Mitchell, Clarence Blair (grandfather), 10, 176-177,193-194 Mobil Oil Company, 149-15 1 model rules, see also Code of Professiona l Responsibility ethics, 192-93 money versus fun, 161,17 5 Morgan, J. P., 34 Morris, Lawrence B., 164 Morrissey, Thomas E., Jr., 39 Morrison, Alan B., 88-97 Morrison, Theodore, 128 Morton, Otis, 45-48 Moskin, Morton, 171 Motley, Constance Baker, 107-114 Mountain City Club, 130 Moynihan, Patrick, 186 Mullen, Peter, 152 Mulligan, William H., 12n. 1 Murphy, J. Adam, 16-27,29-30 Murray, Archibald, 199,20 0 Murray, Kay C, 19 9 Namm, Benjamin H., 51 Natelli (of Peat Marwick), 165-166 National Distillers, 64 National Student Marketing (NSM), 163-174 New Haven Railroad, 63 Newlin, Chauncey A., 77-92 Newman, Jon O., 62 New York City School Volunteer Program, 197 New Yorker, 1 5 New York Law Journal, 47,67 New York State Bar Association, 24,192,196 Action Unit Number Four, 190-191 New York Stock Exchange, 26 New York Times, 55,101,102,119,151,173 New York University (NYU), 198 New York University School of Law, 16 New York Yacht Club, 100 Nickerson, Robert E., 1-5,31-33 Nixon, Richard M., 102,18 1 Northwest Industries, 151 offices associates', 27 partners', 29 Wall Street, 27-28 Ohio law, 153 Olds, Irving S., 27, 52, 54

opinion letters, 11 Orr, Walters., 10-11 Otis, Morton, 45-50 Page, Patti, 128 Parker, Barrington D., 172 Parr, F. Van Siclen, Jr., 43 partnership, 51-52 Peat Marwick & Mitchell, 164-16 8 penal law, 22-23 Pennoyer, Paul G., 14-15,3 4 Perkins, Edward C, 58 Pillsbury Madison &Sutro, 182,18 9 Pistell, Richard, 41-43 Piatt, Eleanor, 16 pleadings, 91 Pomeranz, Abraham, 105-108,111-118,14 8 Pomerantz Levy Haudek & Block, 109 Posner, Richard L., 60 Powell, Richard R., 9 Pride, Frederick, 31 Prime Minister of Japan, 149 prime rate, 155 privilege, 145 product liability T-l Steel , 123-143 trichinosis, 37-39 "profits, if any, will be nominal," 104 proof reasonable doubt, 23 Prudential Insurance Company, 184 public policy, 180-20 1 Quealy, William H., 99 Radolv. Thomas, 154-160 Raeder,Mr., 18 railroad rates published and unpublished, 61-64 rebates, 61 Randall, Cort, 164 Ray, George, 188,189 Reactive Metals, Inc. (RMI), 65 Redmond, Roland, 100 Regan, Donald T., 119 res judicata collateral estoppel, 32 issue already decided, 23 Resnick, Daniel A., 172 Resolution Trust Company, 173-17 4 Rikers Island, 23 Robena coal mine, 77,80

Index/211

Roderick, David, 154 Rogers and Wells, 144, 149 Rogers, William, 144-14 9 Rosiny, Frank, 192 Roudebush, George, 116,117 Rubin, Carl B., 153 Ryan, Sylvester, 29-30,59-60 Saturday Evening Post, 39 Scarlett, Frank M., 74 Schencker, Ben, 31-32 Schencker, David, 31-33 Schmeer, Benny, 21-22 Schmidts, Edward C, 163, 171,173 Schneider, Carl, 98 Schooner "Pretty Maid," 71 Scott, Austin, 46 Scott on Trusts, 46 Seaboard Commercial Corporation, 17-20 search and seizure unreasonable, 22-23 Securities and Exchange Commission (SEC) Collier's fraud investigation , 39-43 formS-1,39 generally, 31 going public, 39 illegal foreign payments, 144-149 lawyers' fees, 8 National Student Marketing (NSM), 163-174 injunction, 171-17 3 New York office, 16 questionable payments, 145 regulations, 153 securities regulation, 146 illegal foreign payments, 105-122 recision, 40-41 Section 10(b) , 163-173 Section 10(b ) and 11 mergers, 153-160 new issues, 105-122 Seidman, Mildred, 98 Seligman, Eustace, 18-20 Sellers, Charles R., 8,9 Senate committees, 145 separation of powers constitutional doctrine, 147 settlement of cases, 53,64,98,138-139,155,17 2 considerations, 172 judicial efforts, 157-15 9 giving the "sleeves off your vest," 170

technique, 170 timing, 155 versus verdict, 159 win-win versus bad taste, 160 sexual discrimination, 174 Seymour, Whitney North, 58 Seymour, Whitney North, Jr. (Mike), 58 Skadden Arps Meagher & Flom, 46,152 Sloane, Alfred, 28 Smith, BracyD., 80 Smith, William French, 173 Snyder, Daniel J., 68-69 Social Security taxes, 73,184-185 Solicitor for the Affairs of His Majesty's Treasury, 43-45 Southern Railroad, 74 Spitzmuller, Lucy, 45-50 Sporkin, Stanley, 107,148, 168,171 Spurlock, Spike, 189 State Department, 26 Statute of Frauds, 29 steelmaking, 77-79 steel pricing, see also antitrust law, 55-64 extras, 55-56 steel strike, 84,93,165-167 steel welding, 123-14 3 stenographers, 22,96 Sullivan & Cromwell, 18-20 summary judgment, 144,15 9 summation, 4,140-141 Sutro, Jack, 182 Swedish Match Company, 9 Swift & Company, 37 takeover battles, 151-153 target company, 152 taxes good ideas, 11 interest, not subject to bargaining, 98 negotiable/nonnegotiable, 75,98-9 9 income tax rates, 161 Korean War excess profits, 77-99 Taylor, Rex, 133 Tennessee Valley Authority (TVA), 125-143 Thomas, Neil, 140 Thomas, W.B., 154 Thompson, Clifton, 17 6 Thomson, Hugh L., 45 Thornburg, Richard, 69 Thursday Group, 183 titanium, 64-65 toasts, 160

212 / Inde x

Touche Niven, 20 trial by battle, 53,172 Blackstone Commentaries on the Laws of England Book III 337-41 Book IV 340-42 trial lawyer, 4,63-64,72 matadors, 57 quick study not enough, 128 trial counsel and witness from sam e firm, 93 DR5-102A.,B DR5-101B.1.,2.,4. trial preparation alcohol, 54 depositions, 38,63,64,106,11 0 by videotape, 88,109-111 discovery, 187 dividing up questions, 38 document demands, 32-33 evening courses in trial practice, 20 form o f proper objection, 63-64 good lawyering, 71,89 limited files, 106 mock juries and minitrials, 154-155,15 7 practice questions, 39 questions, form of, 63 voluntary disclosure, 71 written interrogatories, 32-33 trust and estates ambulatory power, 45-50 power to sell, 49-50 Spitzmuller v. Bankers Trust Company, 45-50 turbine, 125-12 6 Tweed, Harrison, 24,53 Tyson, Robert, 80,154 Union Club, 174 unions construction, 181-18 3 craft, 182-18 3 Union Theological Seminary, 199 U.S. construction industry, 180 U.S. Steel Corporation, 52,55-65,70-71, 77-99,123-143,149-160 product managers, 55 value, 114-11 5 venue, 60 Victoria Foundation, 23 Vietnam War, 101,102,18 0 Visiting Nurse Service of New York, 197 Vogel, Larry, 89-90,92 Von Kalinowski, Julian O., 106-10 7

vouching in, 108,119 Wachtel Lipton, 152 Wadmond, Lowell, 15,27,53,54,64,102, 176-179,188-190 Wage Control Board, 181 Waid, Jesse, 73,175 Walker, Web, 99 Wall Street, 152,17 5 Wall Street Journal, 151,173 Warren, Earl, 41 Washington, Bushrod, 71 wealth redistribution of, 20,6 4 Wechsler, Herbert, 10 Weeks, Philip H., 32-34 Weinfeld, Edward, 59 Weiss, Melvin, 155-16 0 Weseley, Edwin J., 172 Whitney, Richard, 100 WilkieFarr,73 wills and trusts, 45-50 Wilson, Christopher W., 11,13 Wilson, Frank W., 129-14 3 Winpisinger, William, 181 witness preparation, 5,68,154 answer only question, 57,64,68, 89 care and feeding, 154 credibility, 140 "don't know," 90 evasive answers, 132 examination of, 12 9 expert ever wrong, 131 expert testimony, 116 expert witness, 93-96,116,128 morale, 109 one lawyer per witness, 90 Wolfram, C.W., Modern Legal Ethics, 19 0 Women's Prison Association, 200 World War II, 3,48, 54, 78 Writer to the Signet, 45 Wyatt, Inzer, 1,4,62 Wyer and Phlugfelder, 28-30 Yale Law School, 29,58 Yeats, W.B., 70,112 Young, Robert, 28-30 Zolator, George, 16