(Illustration by Sara Tyson)
A courtroom victory turned sour for Akin Gump Strauss Hauer & Feld in May after the firm discovered that its client’s case was apparently based on deceit. But in its haste to flee the case, did Akin Gump reveal too much about its former client’s alleged malfeasance?
Akin Gump told a judge on May 21 that its client, a software developer called LBDS Holding Company, fabricated evidence to win a $25 million jury verdict earlier this year in the Eastern District of Texas. In a withdrawal motion, Akin Gump’s Sanford Warren Jr. wrote, “Akin Gump now knows that it offered false evidence and testimony in the record in this litigation.” He told U.S. District Judge Leonard Davis that LBDS’ CEO admitted to the firm posttrial that its damages theory was built on a phony contract and fake emails, and that LBDS is under investigation by federal prosecutors and the U.S. Federal Bureau of Investigation.
In an emergency motion for sanctions, ISOL’s lawyer, James Walker of Cole Schotz Meisel Forman & Leonard, representing defendant ISOL Technology Inc., asked the judge to set aside the verdict, dismiss LBDS’s claims with prejudice and order LBDS to pay his client’s legal fees.
In the runup to the litigation, Dallas-based LBDS supplied software to ISOL for use in the MRI machines that the South Korean company manufactures. But in its 2011 complaint, LBDS alleged that ISOL had misappropriated trade secrets and breached a supply agreement, causing LBDS to miss out on a $25 million business opportunity with a health care IT company, Cerner Corp.
To support its case, LBDS cited a purported email exchange with Bill Gish, Cer­ner’s director of business development, in which Gish promised that Cerner would buy LBDS software. LBDS also unveiled a contract with Cerner with a minimum purchase requirement clause.
The evidence was apparently persuasive to jurors, who awarded LBDS $24.4 million in lost profit damages on the contract claim, plus $760,000 in compensation for trade secrets misappropriation and unfair competition.
Then, on May 2, almost two months after the trial, ISOL counsel Walker says that he received an anonymous tip to call an FBI agent regarding LBDS. Cerner, he learned, denied that it had a deal with LBDS worth $25 million. According to Cerner, the contract and Bill Gish emails were fake. On May 14 Walker served Akin Gump with a draft motion for sanctions against LBDS that included affidavits from Gish and other Cerner employees.
In its withdrawal motion, Akin Gump says that Warren confronted LBDS CEO Albert Davis by phone the next day. According to Akin Gump, Davis told Warren that the allegations in the sanctions motion were “essentially correct.” Akin Gump also said that Davis admitted to setting up a fake domain name, Cernerinc.com, and sending emails from that domain name. (Cerner’s actual website is Cerner.com.)
In a statement, Akin Gump general counsel Barry Chasnoff said the firm was shocked to learn of the fraud. “Akin Gump prides itself on approaching each representation with the utmost in integrity and professionalism, and we are deeply disturbed by LBDS’ actions,” he said.
Walker says he believes Akin Gump did not know that evidence had been fabricated. Both sides changed counsel during the litigation—Akin Gump taking over for McKool Smith in early 2013, and Cole Schotz for Susman Godfrey a few months before trial—and many depositions were done late in the game, allowing less time for the truth to come out.
Akin Gump’s efforts to distance itself from the alleged fraud didn’t sit well with its client, however. In a pro se motion filed on May 27, LBDS CEO Davis wrote that he won’t oppose the firm’s decision to withdraw from representing the company, but said that he “does object to the inclusion of statements alleged to have been made by the company’s representatives in Akin Gump’s motion to withdraw, as the disclosure of those statements violates [LBDS'] attorney-client privilege.” Davis indicated that LBDS would file a longer brief outlining its objections, and asked for an extension so that he could consult with a new legal team.
In its withdrawal motion, Akin Gump said it was bound by ethical rules to “take remedial measures, including disclosing LBDS’ deception to the court.”