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Cleary Seeks Vindication in Appeal on Sanctions
New York Law Journal
June 26, 2008
It was a matter of honor that brought Cleary Gottlieb Steen & Hamilton to the 2nd U.S. Circuit Court of Appeals Wednesday morning. Several lawyers from the firm, led by managing partner Mark Walker, were present in the ceremonial courtroom of the Daniel Patrick Moynihan U.S. Courthouse.
Last August, the elite New York law firm was the subject of a particularly stinging sanctions order by Southern District of New York Judge Loretta Preska, who said the firm had shown "a willingness to operate in the murky area between zealous advocacy and improper conduct" in attempting to interfere with the deposition of a nonparty witness.
"That's a pretty stigmatizing statement for a court to make about an entire firm," Cleary's lawyer, Roy Reardon of Simpson Thacher & Bartlett, told the panel of judges -- Ralph Winter, Jose Cabranes and Roger Miner.
But Preska's "stark and harsh" decision was plain wrong, Reardon said, maintaining that Cleary's lawyers broke no ethical rules. Rather, he argued, the sanction order was the result of a calculated campaign by a global hedge fund out to impugn the integrity of the law firm that frequently opposes its efforts to collect on distressed sovereign debt.
The sovereign debt at issue in the underlying case, Cleary Gottlieb Steen & Hamilton v. Kensington International Ltd., was that of the Republic of Congo, a longtime Cleary client. Kensington, a branch of hedge fund Elliot Associates, had obtained a $57 million judgment on Congolese debt from a London court and went to federal court in Manhattan seeking both enforcement and discovery to determine the money's whereabouts.
On the trail of the money, Kensington, represented by Dechert, subpoenaed Médard Mbemba, a French-Congolese businessman and one-time confidant of Congolese President Denis Sassou-Nguesso. Mbemba, who lives in Paris, agreed to appear for a deposition to be conducted by Dechert counsel Arnon Siegel in Washington, D.C., on Feb. 4, 2005.
The Cleary lawyers working most directly on the matter, led by counsel Boaz Morag, were unavailable on that date. In the days before the deposition, they tried to arrange an alternative date, eventually proposing that the deposition take place in Paris, where both Dechert and Cleary have offices. But on Feb. 2, 2005, Dechert informed Cleary that it would go ahead with the deposition in Washington on Feb. 4.
The sanction order stems from what came next. Morag asked Jean-Pierre Vignaud, Cleary's relationship partner for Congo and a Paris-based member of the firm's executive committee, to call Mbemba. Cleary claims the subsequent communications between the two were totally aboveboard, with Vignaud urging Mbemba not to attend a U.S. deposition without a lawyer. At most, Cleary says, Vignaud permissibly explained the point of view of Cleary's client that the case involved a "vulture fund" whose activities could "destabilize" Congo.
But Kensington claimed -- and Judge Preska agreed -- that Vignaud, who was not otherwise involved in the case, was chosen because he was a well-known figure in Congolese political circles. Mbemba, who ultimately decided to proceed with the deposition, testified at the sanctions hearing last year that Vignaud appealed to him as a "Congolese patriot," suggesting that participating in the deposition would be "very dangerous" for Congo.
"This court can but conclude that Cleary feared Mbemba might reveal damaging information or offer evidence of illegal conduct and, thus, attempted, in bad faith, to influence Mbemba's testimony or, better still, to avoid the deposition altogether," Preska wrote in her August sanctions order.
In his appearance Wednesday morning, Simpson's Reardon denied that Vignaud appealed to Mbemba's patriotism, but he acknowledged there were "two versions of what happened in those conversations." He said that Mbemba's testimony was also motivated by his current opposition to Cleary's client, the Congolese government.
Reardon called Preska's finding of bad faith "absolutely inappropriate," saying the judge was wrong as a matter of law to find that a lawyer acted improperly in having his own client’s interests in mind when talking to a nonparty witness.
Kevin Reed of Quinn Emanuel Urquhart Oliver & Hedges argued the appeal for Kensington. The 2nd Circuit judges asked him whether Kensington had been unreasonable in insisting that the deposition be held on Feb. 4 in Washington when a Paris deposition seemed a reasonable compromise.
"Everything would grind to a halt if lawyers couldn’t accommodate each other," said Judge Miner.
"Everything would grind to a halt if everyone resorted to self-help as Cleary did here," Reed replied. He later added: "You don’t go to the witness and say the sort of things Mr. Vignaud said, which can only have the effect of intimidating a witness and shaping his testimony."
The sanction against Cleary now under appeal is actually the sole remaining issue in the case, which was settled in February. But Reardon said Wednesday morning that Kensington and its affiliates had already raised the sanctions order in other cases.
