(illustration by John Labbe/Getty)
Batters go through slumps, and so do law firms. But some losing streaks are more consequential than others.
In the past six months Cleary Gottlieb Steen & Hamilton litigators have lost a string of historic cases for clients Russia, Argentina and Google Inc., including July’s $50 billion loss in the high-profile Yukos arbitration, while the firm was publicly embarrassed for advice that it reportedly offered to another major client, BNP Paribas. Powerful entities routinely ask Cleary to push the envelope in international law. Lately it hasn’t worked out well.
“While we can’t comment on ongoing matters,” a Cleary spokesperson says, “the firm is proud of the work Cleary lawyers do every day to achieve success for our clients involved in complex litigation around the globe.”
Cleary’s losing streak started in March, when its client Argentina lost a U.S. Supreme Court case seen as systemically important by the investment arbitration community. In BG Group v. Argentina, the justices reinstated a $185 million award against Argentina in favor of an investor that lost the value of its investment during the peso crisis of late 2001. More importantly, it broadly reaffirmed the principle of broad judicial deference to arbitrators.
In May—in a ruling no one saw coming—the Court of Justice of the European Union clobbered Cleary client Google Inc. by conjuring into being a “right to be forgotten.” For Cleary, it must have felt a bit like representing Wade in Roe v. Wade. The Luxembourg court ruled that the Spanish lawyer Joaquin Munoz Rodriguez of Abanlex had a right to demand that Google scrub search results revealing he had once been forced to auction property to pay a debt. Whatever its merits to society, the right to forget will impose untold costs on Internet search engines, which must now assess case by case which Web pages in Europe must be removed from search results because they are “inadequate, irrelevant or no longer relevant, or excessive.”
In June, Cleary lost the highest-profile sovereign debt dispute in history, when the Supreme Court let stand U.S. District Judge Thomas Griesa’s reading of Argentina’s sovereign bonds to require equal treatment of all creditors. The upshot was that Cleary’s client, Argentina, could not service $25 billion in new bonds without paying the holdouts it was determined not to pay. At the end of July, Argentina technically defaulted on its new bonds. Whatever the commercial outcome—still unclear at press time—this decision has upended the worlds of sovereign debt trading and restructuring, not to mention the markets for distressed debt and credit default swaps.
The Supreme Court’s denial of certiorari on the question of equal standing overshadowed an opinion that it issued simultaneously in the same case on a question of significant legal import in its own right. In the undercard of Argentina v. NML Capital, the Supreme Court punched a hole the size of the pampas in sovereign immunity to court discovery after a judgment against a state has been rendered. Only one justice dissented.
To add insult to injury, Cleary was identified in June press reports as “Law Firm 1,” the unnamed firm that the U.S. Department of Justice says gave incorrect legal advice to BNP Paribas on transactions with Sudan or Iran [“Banking on Bad Advice?,” August]. According to the Justice Department’s statement of facts in its $9 billion plea deal with BNP Paribas for “trading with the enemy,” in October 2004 Law Firm 1 “suggested that BNPP may have been able to protect itself from being penalized by US authorities” if it routed Sudanese transactions through an unaffiliated U.S. bank. (BNP allegedly ignored repeated warnings to the contrary by Law Firm 1 in late 2005 and 2006.)
Finally, in July, Cleary lost what appears to be the largest damages award in history, if one discounts a vacated tobacco verdict in Florida and an uncollectible verdict against an indigent man who set his neighbor’s child ablaze in Texas. The former majority shareholders of OAO Yukos Oil Company won a $50 billion award against Cleary client Russia from a tribunal in The Hague. The result broke any previous arbitration records 20 times over.
Is Cleary’s work at fault? The lead lawyers on the other side of the Yukos case, Emmanuel Gaillard and Yas Banifatemi of Shearman & Sterling, praise the firm’s lawyering as outstanding; three other opposing counsel declined to comment. The lead Cleary lawyers on these cases, such as Jonathan Blackman for Argentina, Francisco Enrique González-Díaz for Google, and Lawrence Friedman, the lead trial lawyer for Russia, are all veteran litigators with distinguished records. And Cleary has had its share of multibillion-dollar litigation wins this year. In June the Supreme Court let stand the Second Circuit ruling that protected Cleary client HSBC Bank plc from liability in the Bernard Madoff fraud. In April, Cleary defeated on summary judgment antitrust claims worth billions brought by Eisai Inc. against its client Sanofi over the blood thinner Lovenox. In the $1-2 billion range, Cleary in January defeated a French appeal by Rhodia, arguing that Sanofi should cover the unfunded liabilities of a spinoff. A further appeal to the French Supreme Court is pending.
Cleary represents some of the biggest clients in the world in the biggest cases—especially in disputes involving sovereign countries. Representing nations that are arguably the world’s leading political pariah and the world’s leading financial pariah can be a challenge. Russia and Argentina sometimes take actions that are tough to defend, and each may take aggressive litigation positions in the knowledge that they may never be held to account. Whether Argentina will suffer consequences for its legal loss in the pari passu case is anyone’s guess at press time. Russia plans to challenge its historic arbitration loss in the Dutch courts; if needed, both nations might be able to dodge enforcement forever, thanks to corporate separateness and sovereign immunity. Clients like these need very good lawyers. Sometimes that’s not enough.