Lessons From Defender (And Suer) Of Public Companies

Harry Olivar is something of a rarity. He began his career as a litigator at the firms of Sullivan & Cromwell and Dewey Ballantine, exclusively representing corporate defendants such as Goldman Sachs & Co. He then joined Quinn Emanuel Urquhart Oliver & Hedges in Los Angeles in 2000, and started suing on behalf of shareholders in addition to defending corporations.

Olivar has obtained more than $150 million in settlements for plaintiffs. But he’s also had significant victories on the defense side, including helping to obtain a number of crucial defense rulings while representing former directors and senior management of Peregrine Systems. Olivar spoke with Compliance Week about the things he’s learned litigating on both sides of the securities fence.

How does representing plaintiffs and defendants in securities cases differ?

From a plaintiffs’ perspective, handling a case requires efficiency; there has to be an early focus on what matters in the case and a lot of discipline to keep the case moving. These points are also important on the defense side, but a major difference is that defendants usually favor delay. A defendant’s perspective may often be that justice delayed is justice.

Do you do anything differently because of things you’ve learned from suing companies and defending them?

There are some things we may do a little differently. The first rule of thumb in these kinds of cases is that the party who figures out first what ultimately will matter in the case, will usually ultimately win. Thinking through a case and positioning the case for trial improves your settlement position. The thing for defendants to focus on is the key issues that would arise in a trial—and prepare for them—early on. Money spent early is money well-spent. Make an investment to get the documents you need. Understand those documents. Understand what the key witnesses will say if they are called to testify. Plaintiffs have to do this under the [Private Securities Litigation Reform Act], but it’s important for defendants to do this early as well.

Another thing we do a little differently is that we never even prepare for key depositions without having done at least one mock jury presentation. We do these in-house. You can learn quite a lot from presenting the evidence, the known-evidence and the theories, to mock jurors. The [mock] jurors don’t know which side we represent. We have two lawyers from the firm, one who will take the plaintiffs’ side in the case and one who will take the defense side. By doing this you see how real people will react to the issues … It’s worthwhile to do whether you’re representing plaintiffs or defendants, but it’s probably more important on the defense side, particularly if you have a couple of key witnesses, because you need to see how a juror will react to those witnesses … It also helps to give you a different perspective on settlement. Often, firms defending a securities case will have the knee-jerk reaction; they’ll file every motion they can think of and then, on the eve of trial, will think about settlement. Having handled cases from plaintiffs’ perspective, I can tell you for sure that defendants who wait until the eve of trial are going to pay considerably more than they would’ve had to pay earlier. In particular, if there’s any likelihood that any major claim will survive summary judgment, you need to think about settlement options earlier.

Should corporate defendants be taking more cases to trial? Doesn’t settling cases as a matter of course to make them go away simply encourage more litigation?

I can understand the concern. But the federal reforms have pretty much taken care of the so-called strike suit. The hurdles for bringing a securities class action are significantly higher than they used to be. A lot of investigation needs to be done on the plaintiffs’ side to bring a case that has sufficient merit to survive a pleading challenge. I don’t want to concede by any means that all securities cases are meritorious, but usually the ones that survive under the PSLRA have some legitimate indicia of fraud set forth in the complaint. I don’t see how having corporate defendants try more cases would result in a major sea-change. Usually plaintiffs are prepared to try a case when they’ve already done the investigative work to survive the strict pleading standard. As for settling cases encouraging more filings, it is important to keep in mind that those securities cases that settle usually settle for a fairly small percentage of the claim.

What is the biggest challenges facing corporate defendants today?

First and foremost is that, in the post-Enron climate, the average citizen is very suspicious of corporations and the people who run them. People have the expectation that even outside directors on the board should have acted as policemen and should have figured out something was wrong. That’s a mindset defendants need to overcome. Defendants have to show that, despite these suspicions, the reality in their particular case is different. Perhaps the pendulum is swinging back a little bit, but we continue to see in mock juries that there is lingering suspicion. Many jurors react by saying, “Oh come on, the defendant must have known.” It’s very hard to shake them from that, regardless of what the facts may show.

And what’s the biggest challenge for plaintiffs?

The biggest challenge is the PSLRA and the [Securities Litigation Uniform Standards Act]—the two federal acts intended to make it more difficult to bring a securities class action. Under the PSLRA, it’s very hard to bring a completely meritless securities case. And SLUSA has made it more difficult for plaintiffs to proceed with claims in state court. And then also there’s the economics: Plaintiffs usually have to go up against several well-heeled defendants and big law firms. They have to be prepared for a long battle.

You hear a lot from defense lawyers about “creative plaintiff lawyers” coming up with new theories of liability. Do plaintiff lawyers really get together to plot new ways to sue corporations?

I think with respect to the theories of substantive liability, those areas are fairly well settled. The creativity we see now is really procedural creativity. Plaintiffs are trying to find a way to stay out of federal court and to proceed in state court. For example, plaintiffs are bringing claims with just under 50 individual plaintiffs, to slide in under the SLUSA [maximum] of 50 plaintiffs for state court actions. In one case we’re in the middle of litigating, the class action plaintiffs—who originally sued in federal court—made a deal with the bankruptcy issuer to form a litigation trust, become the beneficiaries of the trust, and thereby acquired the issuers’ claims. They then filed those claims in state court. What you have is a federal plaintiff class dressed up in “litigation trust” clothing attempting to pursue their claims in state court.

Do you have any suggestions for companies in terms of what they can do to decrease the chances that they’ll be sued?

Sarbanes-Oxley compliance and disclosures go a long way toward preventing fraud, but it is also a good idea for companies to consider changing their auditor every two or three years. That may not be popular because it’s more expensive, but it’s a way of making sure that the right controls are in place and there are fresh sets of eyes to uncover any accounting improprieties. In terms of protecting the people who are running your company if a claim is filed, the most important things are to document board discussion and activities, and to have a strong audit committee.

Thanks, Harry.