Attorneys for former Tyco International chief executive officer L. Dennis Kozlowski and chief financial officer Mark J. Swartz asked the New York Court of Appeals Tuesday for new trials for their clients because of allegedly prejudicial rulings by the trial judge on the use of materials gathered by Boies, Schiller & Flexner during an internal investigation of the company.
John S. Martin argued on behalf of Kozlowski that attorney David Boies should not have been allowed to testify that Swartz told him it was Kozlowski who directed Swartz to make tens of millions of dollars in bonus payments at issue in their criminal case.
"Why is that such a devastating piece of evidence?" Judge Robert S. Smith asked, noting that Swartz and Kozlowski maintained from the beginning that they were entitled to the money based on surging Tyco revenues in 1999 and 2000.
"Because it is an admission by Swartz that this is wrong, it says that Kozlowski is part of this wrong," Martin replied. "It's like any confession that you get against a non-declarant. It's a confession of a co-defendant that implicates the defendant. ... Kozlowski's credibility was crucial. To the extent that Swartz undermined Kozlowski's credibility, that really just devastated his defense."
Boies' role in the case changed between the first trial for Kozlowski and Swartz in 2004, which ended in a mistrial, and the 2005 trial at which the pair were found guilty of plundering Tyco of more than $100 million in improper bonuses and other enrichments, Martin said.
In the first trial, Boies' testimony covered three pages of trial transcript. In the second, it took 75 pages. Boies did not interview Kozlowski and Boies' testimony that he could find "no justification" for certain bonus payments should not have been used against Kozlowski, Martin contended.
Smith wondered if Kozlowski could complain about Boies being allowed to testify at length, considering his status as a prominent attorney who had investigated Tyco and its executives.
"Isn't that what happens at a trial?" Smith said. "If you have a superstar witness who has something relevant to say, you're allowed to put him on."
Manhattan Supreme Court Justice Michael Obus denied motions for a mistrial or to sever Kozlowski and Swartz as co-defendants, or to instruct the jury that Boies' testimony should not be construed as impugning Kozlowski, according to Martin, of Martin & Obermaier.
INTERVIEWS AT ISSUE
Tyco turned to Boies, whose clients have included IBM, the New York Yankees, the U.S. Department of Justice and former Vice President Al Gore, amid the growing suspicion within the company and by prosecutors that Kozlowski and Swartz had improperly enriched themselves with Tyco assets.
Among the information Boies gathered were 28 pages of interviews with company directors that Swartz's attorneys tried unsuccessfully to subpoena. Justice Obus ruled the materials were protected by attorney-client and work product privilege.
Swartz's attorney Nathaniel Z. Marmur argued Tuesday that the interviews, conducted in mid-August 2002 while Swartz was still chief financial officer, may have buttressed his client's contention at trial that the Tyco directors believed Swartz did nothing wrong by accepting the bonus payments. Soon after the interviews with Boies, Swartz was given a $50 million payment, Marmur pointed out.
"The day after the directors made these statements [to Boies, Schiller & Flexner] they paid to Mark Swartz $50 million," Marmur told the court Tuesday. "That's not the kind of action that someone would take, the fiduciary of the company, who believes that their CFO has just pilfered $50 million."
Marmur, of Stillman, Friedman & Shechtman, also assailed the "joint defense agreement" Tyco signed with Manhattan prosecutors in which the company agreed to share information from the internal probe if it was useful to the district attorney's office.
It is unfair to give prosecutors "the stuff that will lead to a conviction," and then to withhold from the defendant other statements gathered during the internal investigation as privileged, Marmur argued.
Judge Carmen Beauchamp Ciparick was among several judges who questioned why Obus did not perform an in camera review of the interview transcripts sought by Swartz before denying the subpoena for their release.
Manhattan Assistant District Attorney Amyjane Rettew told the court the interviews with the directors collected in August can be shielded from disclosure to Swartz as privileged because he was unable to show he was not on a "pure fishing expedition" in subpoenaing them. She disputed whether the directors still had confidence in Swartz in August 2002, as Swartz's attorneys said the interviews gathered by Boies would indicate, when Swartz was "out on his ear" from Tyco the next month.
The directors eventually testified at trial that they knew nothing about several of the bonus payments to Kozlowski or Swartz and did not authorize them.
The case against Swartz and Kozlowski, formerly Tyco's chief executive officer, came to symbolize corporate greed of the late 1990s and early 2000s, especially through revelations of their extravagant spending of Tyco funds for seemingly personal purposes.
Those expenditures included nearly $2 million for three paintings used to decorate a $60 million Fifth Avenue apartment occupied by Kozlowski and $1 million to pay for half the cost of a lavish 40th birthday party for Kozlowski's former wife Karen on the Italian island of Sardinia.
In 2005, Kozlowski and Swartz were each convicted by a jury of 22 of 23 counts, including grand larceny, falsification of business records, securities fraud and conspiracy. Prosecutors said the case was the largest larceny ever prosecuted in New York state.
Justice Obus sentenced each man to 8 1/3 to 25 years in prison. In addition, Obus ordered Kozlowski to pay $97 million to Tyco and $70 million in fines. Swartz was ordered to make $37 million in restitution payments and pay $35 million in fines.
The two men have been in custody since they were led out of Obus' court in handcuffs following their sentencing.
Kozlowski, 61, is in the Midstate Correctional Facility, Oneida County, and Swartz, 41, is in Collins Correctional Facility, Erie County. Both are medium-security prisons.
A four-member Appellate Division, 1st Department, panel unanimously upheld the convictions in People v. Kozlowski, 47 AD3d 111 (2007). That court found that the evidence "amply" supported the jury's findings that Kozlowski and Swartz took unauthorized bonuses from Tyco in 1999 and 2000.
Only the company's compensation committee carried the authority in those years to grant the bonuses Kozlowski and Swartz accepted, and all the surviving members of the committee testified that they had never given their approval to payments, the 1st Department panel concluded.
The cases are People v. Kozlowski, 137, and People v. Swartz, 138. The court is expected to hand down rulings in late October or November.
