Transatlantic litigation: In hot dispute
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When I meet Cadwalader Wickersham & Taft partner Tom O’Riordan it is two days since Iceland made its dramatic contribution to the global financial crisis, and O’Riordan has been up all night counselling clients on the consequences.
His experience at the bar and at banks such as Nomura, Republic National Bank of New York and Sumitomo could almost have been pursued specifically in preparation for this crisis.
“My bed and I have not been together much lately,” he confides.
O’Riordan is due in court in four hours to argue the case for another client trying to recoup money from the administrators of Lehman Brothers. This, it seems, is his moment. And his experience is typical of nearly all of the top litigators interviewed for this piece.
“You’ll have to be quick, I’m due in court,” I hear often, usually followed by a sigh and an unnecessary explanation: “Since the credit crunch…”
O’Riordan only joined Cadwalader in July after five years at the bar with Quadrant Chambers and 4-5 Gray’s Inn Square. If the challenge of building a book of business for the first time was daunting, his timing could not have been better.
“Maybe it’s opportune,” he says. “Because you have all the big banks wanting advice on their derivative positions. Clients are very needy when these things happen. And all of the big banks are looking at their assets and their obligations to each other. My main problem at the moment is conflict because I am acting for most of the major banks.”
For example, O’Riordan couldn’t assist one of his oldest clients – and former employer – Nomura with its purchase of Lehman Brothers, a big client of Cadwalader, because he had acted for Lehman Brothers in the course of his new job.
His recruitment was part of a diversification strategy aimed at loosening the Wall Street firm’s reliance on its capital markets practice. Structured finance rival Sidley Austin acted similarly when it poached barrister and solicitor-advocate Dorothy Cory-Wright and her team of three associates from Kendall Freeman in July 2007. “When we originally looked at this, we looked at it as a reinsurance litigation play,” says Sidley’s London managing partner Drew Scott.
But Scott suspected it could be a whole lot more than that when he told his partners that the hire could be a “seminal” moment for the office. And so it has proved, as Cory-Wright has turned her hand to a whole bunch of commercial disputes.
Now, says Scott, “Increasing our litigation capacity is a strategic priority.”
Two of the most high-profile cases Cory-Wright has worked on include advising the Formula One governing body the FIA on an investigation into the MacLaren/Ferrari spying saga, and advising the senior subordinated note holders on the Orion SIV restructuring – one of the first restructuring disputes concerning a SIV.
Flexibility is the order of the day. The London office of the world’s biggest litigation shop, Skadden Arps Slate Meagher & Flom, launched its international arbitration group in 2001 when it signed Paul Mitchard QC from Wilmer Cutler & Pickering.
The London disputes team may not be the size of the US behemoth, but it’s not tiny – comprising three partners, three counsel (including partner-level Penny Madden) and 20 associates. The group was launched to complement the office’s key business of international corporate and finance transactions.
“The dispute resolution clauses in those contracts tend to demand arbitration,” says Mitchard.
The exception comes from banks, which like to resolve their disputes in court so they can get a quick result.
But it’s not just banks that are demanding a quick return of money in the current climate. Since the global financial crisis took hold, Skadden’s arbitration team has turned its hand to a far greater amount of High Court litigation. There are two types of case that Skadden is dealing with most at the moment: the enforcement side, where clients are enforcing their rights because businesses have lost value, and cases spinning out of the non-closure of deals.
Again both types of case will generally have sprung from the transactional departments, meaning it’s not just O’Riordan at Cadwalader who is struggling with conflicts of interest. With firms such as Cadwalader, Skadden and Sidley reaping so much of their revenue from financial institutions, they couldn’t act against them. That said, a number of firms are starting to indulge a more liberal, pragmatic approach to conflicts.
“Given the changing world in which we live, I don’t see why I shouldn’t litigate against a bank just because we used to advise it on something called a CDO [collateralised debt obligation], which doesn’t even exist any more,” says one litigator bullishly.
This is still a tricky subject, and one that few were prepared to discuss on the record. Many, however, are re-examining their attitudes to conflicts.
“A bondholder may approach us about their position, but does the fact that we acted for the arranger on a [structured finance] deal prevent us from advising the bondholder now?” asks another partner.
Reed Smith has been addressing this issue for years. The US firm has no need to build up a UK disputes capability. Unlike most of the other US firms in London (bar DLA Piper and Mayer Brown) it came almost fully formed when it merged with UK firm Richards Butler in 2007. Despite the latter being renowned for its disputes prowess, litigation revenues at the UK arm still only account for 42 per cent of total UK revenues compared with a firmwide figure of 52 per cent and a US figure of 55 per cent.
Yet back in 2003, when Richards Butler positioned itself to take advantage of City firms’ conflicts, litigation accounted for 60 per cent of the firm’s revenues. At the time, managing partner Roger Parker told The Lawyer: “We don’t have the scale of banking practice of some firms who may have the potential for conflicts. Herbert Smith and the magic circle have a linkage to their corporate client base.”
Following the Reed Smith-Richards Butler merger and the inheritance of Reed Smith clients such as The Bank of New York Mellon, Parker has cooled off.
“We have to be sensitive to our worldwide clients,” says Parker. “It has impacted our position but we have to be realistic about it.”
The conflicts issue is all the more relevant as most of the US firms’ disputes groups have been formed to support transactional businesses.
O’Riordan’s colleague Michelle Duncan, Cadwalader’s London litigation chief, says: “I’ve long regarded my main clients as the other groups in the firm.”
And for Duncan that means the firm’s restructuring team in New York rather than the litigation group. Global litigation chief Greg Markel believes this is more a by-product of the relatively small size of the London litigation team and would like to build London’s litigation strength, specifically in arbitration and competition – two practices that tend to be more international.
“It’s quite possible that we’ll do some things to expand litigation outside the US,” says Markel. “We won’t be White & Case, but we will expand in certain areas. I personally think that if you have a strong group in international arbitration you can only further your relationships with international clients.”
White & Case does indeed have a very international disputes capability.
London litigation partner Alistair Graham has built his reputation on the Ian Norris extradition case – a competition case that was referred to him by his colleagues in Washington DC five years ago.
The day before I meet Graham, news is leaked that the US Federal Bureau of Investigation (FBI) would be investigating potential fraud at mortgage lenders Freddie Mac and Fannie Mae, insurer American International Group (AIG) and investment bank Lehman Brothers.
“The prospect of losing a couple of million from your bonus is one thing, but the prospect of facing a prison wall in Texas is another thing altogether,” says Graham. “A lot of the banks I act for have been on the phone asking me for advice.”
Graham is far too discreet to name those banks, but White & Case’s banking clients include the likes of Citibank, Credit Suisse, Deutsche Bank, Merrill Lynch and Morgan Stanley. Oh, and Lehman Brothers.
“Everyone thought that extradition applied to terrorists and baddies. But that has changed because the US has become much more aggressive in its extraterritorial reach. Now it has got the weapons it needs to pluck people from other countries much more easily,” says Graham.
Graham believes that extradition cases will continue even after the election of Barack Obama. “Although the personnel will change, my strong view is that the extraterritorial policies of the Department of Justice will not change,” he says.
But extradition is a niche. As with his colleagues at other US firms, Graham’s meat and drink comes from the transactional practices. “We get lots of corporate work where US companies have made European investments, and we’re involved in sorting them out. We’re the sorting-out department,” he adds.
To see the firms making the most in global litigation, click here. And for more on litigation, read our features on the litigation strategies of the global elite and the London development of US players Gibson Dunn and Debevoise & Plimpton, plus our interview with Paul Weiss's Brad Karp.