Losing Their Footing

Shannon Green

Corporate Counsel

10-01-2012

If it wasn't bad enough for TD Bank N.A. that in January a Florida jury found it liable for its role in the Scott Rothstein Ponzi scheme, in August the judge sanctioned the bank for discovery abuses. And she found particular fault with the in-house lawyers.

U.S. District Judge Marcia Cooke sanctioned the bank along with its outside counsel for what she called "a pattern of discovery abuses before, during, and after trial." Following hearings in May and June, she reserved her harshest criticism for in-house lawyers who failed to produce all relevant documents and hid information from trial counsel at Greenberg Traurig.

Outside counsel acted negligently, said the judge, but the bank's discovery violations were "willful." For an in-house lawyer, says Vincent Catanzaro, global discovery manager for E.I. du Pont de Nemours and Company, "that's the worst thing you want to have written about you."

A spokesperson for TD Bank said in an email that the bank "believes that the findings regarding TD Bank's in-house legal department are based on incorrect assumptions and are not supported by the evidence presented at the hearing." The bank will appeal the order and the jury verdict, she added. Greenberg Traurig responded in an email: "While we did nothing willfully wrong, we nonetheless regret the circumstances that gave rise to this order. When we discovered that errors were made, we promptly advised the court." The firm no longer represents the bank on this matter.

The troubles date back to the $1.2 billion settlement funding scam that Rothstein ran out of his Fort Lauderdale law firm. The collapse of the scheme in October 2009 forced the firm's liquidation, and during the bankruptcy proceedings Rothstein testified that TD Bank played a "critical" role in the fraud. Now serving a 50-year prison sentence, Rothstein kept millions of bamboozled investor dollars in the bank, and he's said that he bribed TD Bank's then regional vice president to falsify bank records.

TD has been hit with at least nine lawsuits filed by Rothstein investors. The one that ended in January, which was brought by Texas-based Coquina Investments LLC, was the first to go to trial. The jury in Coquina Investments v. Rothstein found that the bank made misrepresentations to the investment group that helped advance the fraud, and awarded the plaintiffs $67 million.

There were no allegations of discovery violations at that point. Had Coquina counsel David Mandel not been simultaneously representing other Rothstein plaintiffs, there might never have been any. But two months after the trial, the Mandel & Mandel partner received a surprising document during discovery in his next case against the bank.

Mandel had been given a version of the document, known as the customer due diligence (CDD) form, during discovery in the previous case. In fact, he'd used it during the trial to undermine the bank's central defense: It failed to detect the fraud because it never considered Rothstein a high-risk customer and therefore didn't subject his accounts to heightened scrutiny.

Both document versions showed that the Rothstein accounts were labeled "HIGH RISK," but there were two striking differences. The first document Mandel received was black and white, with the damning words barely legible. The second was in its original digital form, and it displayed the words in bright red across a banner at top of the page.

Mandel filed a motion for sanctions in March, accusing the bank of intentionally misleading the jury. He said in a court filing that had the true document been produced in the earlier litigation, he would have blown it up "giant size for closing argument, and its effect would have been devastating to the 'low-risk customer' defense."

In April the other shoe dropped. Greenberg Traurig filed a rare motion to withdraw statements made by its counsel. Another piece of evidence, known as the standard investigative protocol (SIP), the existence of which Greenberg had denied at trial, had since turned up in its possession. The SIP contained guidelines for investigators at the bank to follow when looking into suspicious account activity. Vincent Auletta, the bank's associate head of enhanced due diligence, submitted a sworn affidavit at trial also denying that there was such a document.

During the sanctions hearings, Cooke voiced concern about in-house counsel's level of involvement in the case. Auletta, the bank's corporate representative regarding money laundering matters, testified that the only interaction he had with any in-house lawyer throughout the litigation was with Leo Doyle Jr., the bank's head of U.S. litigation. Doyle contacted him a couple of times by phone and email, he said, but only to schedule depositions. Cooke found in-house counsel "conspicuously absent from any involvement in supervising or assisting in the litigation." The bank would not make Doyle or Auletta available for interviews.

Why were the bank's lawyers—with their unique familiarity with key witnesses and evidence—seemingly detached from the case? The sudden arrival of nine big cases was clearly a burden for the department. The parent company, Toronto-based TD Bank Group, is 60 lawyers strong, according to The Globe and Mail . But the U.S. arm, which is based in Cherry Hill, New Jersey, employs 17 attorneys—only a handful of them litigators. That's not a lot of lawyers in the face of a tidal wave of lawsuits.

Witnesses for TD Bank and Greenberg insisted during the sanctions hearings that their foul-ups had been inadvertent. Cooke found that neither the bank nor its outside lawyers had conducted an adequate search for the SIP. While no in-house lawyers testified in the sanctions hearings, Cooke drew particular attention to their culpability in the doctored CDD form. The bank's explanation that none of the in-house lawyers who sat through trial knew what the document should have looked like was not credible, she found.

Cooke chose not to sanction any individual lawyers, but she did single out Doyle in the order. As outside counsel's main contact in the case, he should have disclosed to Greenberg that consultants for Sullivan & Cromwell were also reviewing Rothstein evidence, she said. Greenberg claimed in the hearings that it didn't know about the work, which was part of a risk assessment report. Although Cooke determined that the assessment wasn't relevant to Coquina , she still said that Greenberg should have been told. "No one outside attorney was aware of the existence of all the discoverable or relevant materials," Cooke wrote in her order. "TD Bank's general counsel's office, on the other hand, had all the information."

So far, Doyle and most of the other in-house lawyers are still working at the bank. In January former Bank of America lawyer Craig Baldauf was recruited to head the bank's global litigation department, a new position, according to a bank spokeswoman. The lone personnel replacement occurred at the top. Ellen Patterson, a partner at Simpson Thacher & Bartlett, was tapped in August to replace general counsel John Opperman. Patterson is slated to join the bank in October.

Opperman left the office of the general counsel in April and has since held an advisory position at the bank. Asked about his plans for the future, Opperman said, "I have retirement coming up." The bank says that he'll leave at year's end.

DuPont's Catanzaro says he's not surprised by the move. "Changing GCs," he says, "is how you make changes to the department."