19 June 2007

A Bad Day At The Office

As the New York Sun (via How Appealing) explains:

A federal judge is fining two law firms for withholding information about an insurance policy that covered the World Trade Center at the time of the September 11, 2001, terrorist attacks.

The sanction, of $1.25 million, is against the firms Wiley Rein LLP and Coughlin Duffy LLP, as well as their client, the Zurich American Insurance Company. . . .

One sticking point during the litigation was the extent of coverage that the Port Authority of New York and New Jersey received under an insurance policy. . . .

During the high-stakes litigation, Zurich American and its attorneys initially kept hidden a copy of a 62-page policy that an employee at the company had printed out on the day of the attacks, Judge Hellerstein wrote in yesterday's decision. This hidden policy suggested that the insurer was responsible for coverage of both the Port Authority and another leaseholder, Westfield Corporation, Judge Hellerstein wrote.

Given the existence of this document, Judge Hellerstein wrote that Zurich's courtroom contentions about the insurance coverage it owed "were either dishonest, or objectively unreasonable, or the product of a failure to make reasonable inquiries."

The full opinion is here.

The award was about half of the attorneys fees the claimants attributed to the cover up of the documents, and the judge correctly noted that parsing out attorneys fees by sub-issue in a big case is extremely difficult to do practically. The judge tried to do rough justice.

Next question. Do the attorneys called about by the judge for hiding and destroying documents face attorney regulatory charges for their actions? The opinion certainly provides ample grounds for doing so, and indeed, may even collaterally estop the attorneys from challenging their wrongdoing in a regulatory context.

This case catches the attention of those of us who do civil litigation, because about 90% of any big civil litigation case is discovery practice, which is what the lawyers involved abused here. Moreover, the court found that even the pleadings submitted by one of the law firms, which are usually held to a low standard, were so wrong on the facts that sanctions were warranted. If the hidden document had been disclosed at the point in the litigation where it was supposed to have been disclosed, that part of the case would have been done in weeks, instead of five years later, avoiding large numbers of depositions and massive document discovery.

Anthony Sebok at Findlaw discusses at some length and with insight the downside of the current low standard, even when it isn't abused, in the context of two high profile cases, a suit by tort reformer Bork against the Yale Club asking for punitive damages where they clearly aren't warranted, and a suit by a District of Columbia administrative law judge asking for excessive punitive damages in connection with a dry cleaning mishap that allegedly left him without the suit pants he brought in for alterations.

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