Harriet Miers and the $22 million settlement

Larry Ribstein, Stephen Bainbridge, Gordon Smith, and Christine Hurt have all posted about a $22 million settlement that Harriet Miers's firm -- or rather its insurer -- paid out after one of the firm's corporate clients turned out to be a running a stock swindle.  In addition, the firm (or its insurer) paid out another $8 million after a similar incident.  All this apparently happened while Miers, a litigator, was the firm's managing partner.

Bainbridge takes the cautious route, saying only that the matter deserves some ventilation at the nomination hearings.  Who can oppose that?  But the smart money says that the staffers prepping for the hearing will quickly realize what a waste of time this topic is.  Ribstein's post is the most off-the-mark, concluding that Miers was a "sleepy gatekeeper" and tossing in some inexplicable, irrelevant comments about her firm's insurer.  Smith concludes that the matters impeach Miers's business acumen.  Hurt offers this conclusion: "However, given the low probability of any payout absent committing fraud, one must conclude that some evidence existed that the firm knew of fraud in the Ponzi scheme."  (Guess what?  Here's all the evidence a firm's insurer needs to decide to settle: the client turned out to be a swindler and the law firm was named as a deep pocket defendant by some sympathetic plaintiffs.)  Hurt also seems to be confused over who paid the settlement.

Except for Bainbridge's, the posts draw their negative conclusions without spelling out any premises.  I will presume that none of them are relying upon some unspoken, novel form of strict liability under which we don't need any facts about what Miers actually did or didn't do.  God help us all if that's the new standard for corporate and legal America -- or for academic America for that matter.

What do the facts show?  According to the Chicago Tribune article that is the primary source for their postings, the fleeced investors alleged that Miers's law firm should have known of the client's nefarious doings.  No proof is offered in the Tribune or in the postings that the corporate lawyers at Miers's firm -- let alone Miers herself -- had any such knowledge.  Critically, no facts are given about Miers's role, if any, regarding client intake, client interactions, work on the corporate matters, the firm's internal response to the revelation of the wrongdoing, the firm's review of its procedures, or the insurer's decsion to settle. 

Miers might have had absolutely zero responsibility for some of those functions.  For all we know her performance in those functions could have exemplary, blameworthy, proactive, tardy, competent, brilliant, clumsy, or whatever.  Without information of that type, no reasonable person can draw any conclusions whatsoever about Miers.  Certainly, not one of those posts provides any warrant for the conclusions being drawn.  I wish I could be kinder about this, but the Ribstein, Smith and Hurt posts ought to be withdrawn.  There are plenty of reasons to oppose a nomination as disappointing as this one, but we shouldn't work ourselves into such a lather that we are trashing people based on armchair speculation.

Comments

[Christine Hurt]

I leave my post as it stands. As to whether the firm did anything wrong, I think that we can make some inferences that there was evidence of fraud. I understand why firms (or their insurance carriers) settle malpractice cases. Whether an attorney breached the standard of care is difficult to defend against when you have a bad result (just as in medical malpractice cases). However, fraud cases are very easy to defend against. What insurance company wouldn't forward the costs of filing a motion to dismiss in that case? I would be interested in any examples of established outside counsel settling or getting judgments against them based on Texas state fraud or federal securities fraud without at least a motion to dismiss. From following securities fraud lawsuits post-PSLRA, I can't imagine any law firm ever settling such a lawsuit. Unless, of course, the plaintiffs had evidence of fraud.
Now, that does not mean that Miers knew anything about any fraud or alleged fraud. She is the mere President of the firm. However, if we are going to put CEOs in jail for not paying attention to what people below him are doing, then why should we elevate such a person to the Supreme Court? None of the bloggers you mention are saying that an inference of organizational fraud should create a penalty for the head of that organization. However, I think there is enough firm ground to say that the same inference should be considered in deciding whether someone should be nominated and confirmed to the Supreme Court.

[John Steele]

Christine,

Thanks for replying.

Here's the crux of the error in your argument. You say, "However, if we are going to put CEOs in jail for not paying attention to what people below him are doing, then why should we elevate such a person to the Supreme Court?"

My point, to reiterate, is that you provide zero evidence that Miers is "such a person." Zero. For all you know, Miers paid great attention, and cracked heads before and after the incident.

On another point, we'll have to disagree. You say, "However, fraud cases are very easy to defend against." In general, my response to that is "it depends." But what we're talking about is a case where the corporate lawyer's client turned out to be a swindler. Even when the lawyer had the best of motives and did nothing wrong, that's not a "very easy" case "to defend against."

[T. Gracchus]

$22 million is not normally a nuisance value settlement.

[John Steele]

T. Gracchus,

Thanks for replying.

Whether or not it was a nuisance value settlement (about which more below), we can't draw conclusions about Miers conduct when we don't know what she did or did not do. It may help to break it down.

Major premise: regarding this incident, we can't make reasonable conclusions about Miers unless we know what Miers did and didn't do. Minor premise: regarding this incident, we don't know what Miers did and didn't do. Conclusion: regarding this incident, we cannot make reasonable conclusions about Miers.

Ribstein, Hurt and Smith are denying the major premise, although they're hesitant to say so expressly. So they implicitly rely on a form of strict liability for the conduct of others, regardless of what Miers did or didn't do.

Now, back to the question of nuisance value. My argument doesn't turn on that question at all. But contrary to the posts that I've been criticizing, the news accounts suggest that the real threat to the firm's insurers was not a "malpractice" claim (as Smith says) and not an actual fraud claim (upon which Hurt stakes her argument) but rather a class action under Texas's unsusually broad theory of lawyer liability for negligent misrepresentation. Details here:

http://bankrupt.com/CAR_Public/000501.MBX

Whether or not it was nuisance value, that kind of class action is one that an insurer could easily decide to settle even if it believed the lawyers had not done anything wrong. Again, as to Miers, we can't judge her actions until we know what her actions were.

[Doug Richmond]

I consider Harriet Miers to be a terrible Supreme Court candidate. But the notion that her former firm's settlement of a case alleging that lawyers in the firm aided and abetted a client's fraud somehow reflects badly on her absent proof that she was personally involved in the client's representation is silly. There have been at least 32 publicly-reported settlements by or verdicts against law firms exceeding $20 million (dating back to 1986). Of those, 26 involved dishonest clients. In light of that, it is impossible to say that Locke Liddell's $22 million settlement of the Erxleben case was extraordinary. Such cases are difficult and expensive to defend (especially considering jurors' well-kown hindsight bias), firms despise the bad publicity surrounding them, and professional liability insurers rightly fear big verdicts--"big" meaning much more than $22 million. In sum, I hope that Miers is not confirmed as a Supreme Court Associate Justice, but I hope that her firm's litigation history plays no part in denying her a seat on the Court.

[John Steele]

Doug,

Thanks for posting.

Do you have any thoughts about Macimish (sp?), the Texas case permitting negligent misrepresentation claims aganist lawyers? According to the news article, that was the claim that drove this settlement.

John

[T.Gracchus]

I agree that the settlement is of little interest to confirmation. The claims were not about her. My very limited point is that $22 million is not nuisance settlement -- it far more likely reflects an assessment that there was significant risk of liability.

[John Steele]

T Gracchus,

I agree that the $22 million settlemnt reflects the insurer's conclusion that there was, as you say, a "significant risk of liability." I am going to post a little longer this weekend on why there can be a significant risk of liability even if the lawyers didn't do anything wrong. And, as you suggest, we still don't know the first thing about what involvement, if any, Miers had with the incident. Not that it matters anymore.

One more thought about that phrase, "nuisance value" or "nuisance settlement." I normally take that term to mean a settlement value based on the full or partial cost of defending a clearly defendable claim. If the defendant pays way above defense costs even though the defendant feels certain that the claim is not true, I wouldn't call that "nuisance value." I'm pretty sure that I haven't called the $22 million a "nuisance" settlement, and I'm 100% sure I don't think it was one.

[Bill Freivogel]

Geez, guys, can't we move on?