In what's shaping up to be a bruising trial, a Dallas County jury began hearing testimony last week in a suit in which a former Baron & Budd lawyer alleges Russell Budd, a founder of the well-known asbestos litigation firm, made negligent and fraudulent misrepresentations to induce him to join the firm in May 2006.
But Baron & Budd, which also is a defendant in the suit, alleges in counterclaims filed in the 68th District Court that plaintiff Gary Cruciani breached a contract with the firm and breached his fiduciary duty when he quit.
The trial is attracting attention in Dallas legal circles because court documents and testimony may lift the curtain on Baron & Budd's financial condition and compensation system.
Also, both sides are fighting with fire. For instance, in Cruciani's Second Amended Petition in Gary Cruciani v. Russell Budd, et al., Cruciani alleges Budd "completely misrepresented the compensation system at Baron & Budd and the upside that allegedly existed there," and Budd showed his "greed" when he paid himself a $50 million bonus in December 2005, which was 75 percent of the firm's bonus pool that year.
Baron & Budd, for its part, brings counterclaims including the allegation that Cruciani, who joined Baron & Budd as a nonshareholder, was told he would not be promoted to shareholder at the end of that year "because of his interactions with female employees." Cruciani denies he acted inappropriately.
Cruciani, now a principal in McKool Smith in Dallas, sued Budd in 2008, and Baron & Budd intervened in the suit with counterclaims and now also is a defendant.
In his April 2 second amended petition, Cruciani, a commercial litigator, alleges the defendants made "numerous misrepresentations" to persuade him to leave McKool Smith in Dallas to join Baron & Budd on May 1, 2006. Among several things, Cruciani alleges Budd failed to tell him about "bad blood" between Budd and firm founder Fred Baron. Baron had left the firm in 2002, and in August 2006 he sued the firm and Budd; that suit subsequently settled. Cruciani alleges Budd failed to tell him about plans under discussion to restructure the firm by laying off lawyers and staff. He also alleges Budd misrepresented the authority Cruciani would have in running the commercial litigation department at Baron & Budd.
Cruciani alleges Budd misrepresented the firm's financial condition and its compensation system, which was known within the firm as "Hully Gully" and called for Budd to make all compensation decisions for shareholders and senior counsel. However, Cruciani alleges, Budd did not accurately describe the compensation system.
"But for Defendants' misrepresentations as alleged herein, Cruciani would not have left McKool Smith to join Baron & Budd," Cruciani alleges in the petition.
He brings negligent misrepresentation and fraudulent misrepresentation causes of action against Budd and Baron & Budd, and he seeks unspecified actual and punitive damages.
Budd denies Cruciani's allegations and alleges in an answer filed on April 6 that Cruciani's "own lack of diligence and/or contributory negligence" contributed to or caused his damages, his claims are barred by the statute of limitations, and he cannot recover punitive damages.
In Baron & Budd's April 6 answer to Cruciani's second amended petition and its second amended counterclaims, the firm denies Cruciani's allegations and alleges he has no standing to question shareholder bonuses because he wasn't one during his time at the firm. The firm also alleges that while at Baron & Budd, Cruciani "acted inappropriately" toward a junior lawyer under his authority "triggering a disruptive human resources investigation that uncovered additional concerns from other employees." Because of that, the firm alleges, Cruciani was told he would not be considered for shareholder status, due to actions including his authoring and sending a message over the firm e-mail system to the junior attorney. The firm also alleges that Cruciani failed to disclose information about "his certain behavior at previous law firms and an earlier incident." Baron & Budd did not provide more detail in the answer and counterclaims filed on April 6.
The firm also alleges that Cruciani's "only basis" for claiming the firm was considering the March 2007 "downsizing" of lawyers for many months before it occurred was a "hearsay" article in Texas Lawyer that "incorrectly dates the start of Baron & Budd's March 2007 downsizing." In that March 2007 article, which reported on the layoffs of 19 attorneys and 100 staffers at Baron & Budd, Budd said the job cuts were due to a "changed business model," because of the impact of asbestos-related tort reforms in Texas and elsewhere, instead of a downturn in business. In the article, Budd said the restructuring had been in the works for a year or so, and a strategy of slimming down the firm through attrition did not work.
The firm alleges in its answer and counterclaims that it "did not consider the 2007 downsizing until late 2006." Budd declines comment while the litigation is pending, but Cruciani alleges in his second amended petition, "Budd now denies making this statement and accuses the Texas Lawyer reporter of misquoting him."
Baron & Budd also brings counterclaims against Cruciani. It alleges Cruciani knowingly participated in a breach of fiduciary duty by hiring Sayles Werbner of Dallas to file the suit against Budd, even though Sayles Werbner was Baron & Budd's principal outside firm from 2000 through mid-2004 and had received more than $380,000 in fees.
"Cruciani knew that SW owed fiduciary duties to Baron & Budd and knew that SW would breach them by suing Budd, but nonetheless encouraged and induced SW to file suit," alleges Baron & Budd, which notes that Sayles Werbner withdrew as Cruciani's counsel on the eve of a hearing on Baron & Budd's motion to disqualify.
Mark Werbner, a partner in Sayles Werbner, says his firm withdrew from representing Cruciani because Cruciani needed to focus on his battle with Budd and Baron & Budd, instead of spending energy on keeping Sayles Werbner on the case.
Werbner says, "We went through a conflict analysis, and we saw nothing to prevent us from representing Gary on these allegations. Our work [for Baron & Budd] was corporate work that was unrelated."
Baron & Budd brings other counterclaims against Cruciani, including breach of employment contract and breach of fiduciary duty for allegedly "diverting Baron & Budd clients to other law firms." Baron & Budd alleges it paid Cruciani about a half-million dollars for his work at the firm, and in early 2007 he "secretly arranged" meetings with other firms. Baron & Budd alleges Cruciani and then-Baron & Budd lawyer Steve Wolens subsequently left the firm and took with them litigation filed against online travel companies.
In May 2007, Cruciani and Wolens joined the Dallas litigation boutique now known as Diamond McCarthy, and brought with them City of San Antonio, Texas v. Hotels.com L.P., et al. , a class action filed in the U.S. District Court for the Western District of Texas. Both lawyers subsequently joined McKool Smith. Wolens did not return a telephone call seeking comment before presstime on April 15.
"It was all a mirage," Cruciani says about his time at Baron & Budd. "I gave up something very valuable at McKool Smith."
Cruciani denies the allegations in the counterclaims lodged by Baron & Budd. He says they were "put in pleadings as leverage."
In his March 15 motion to sever the counterclaims, Cruciani alleges that Baron & Budd's counterclaim alleging he breached a fiduciary duty "effectively alleges he stole clients of the firm" and seeks to recover any salary and bonuses he earned from May 2006 to the present.
"In essence ... B&B [Baron & Budd] seeks every penny of income that Gary has received from his law practice in the last four years and every penny of income and 'other benefits' that Gary may receive from his law practice for untold years into the future," Cruciani alleges in the motion.
Jim Hartnett Jr. of Dallas' The Hartnett Law Firm, who represents Cruciani, says his client was damaged financially by the year he spent at Baron & Budd because he formerly was a shareholder principal in McKool Smith but has been a nonshareholder principal since his return. "So the glide path that was in front of him at McKool Smith is no longer there," Hartnett says.
The Baron & Budd counterclaims are a "smear campaign," Hartnett alleges.
Rod Phelan, a partner in Baker Botts in Dallas who represents Budd, says Cruciani knew exactly what he was getting into when he joined the firm.
"Gary Cruciani did not get a lobotomy at Baron & Budd. He's able-bodied and of sound mind, and he will be paid exactly what he's worth," Phelan says. "He left Baron & Budd the wrong way, and he ought to be ashamed of it."
Bill Sims, a partner in Vinson & Elkins in Dallas who represents Baron & Budd, says, "Mr. Cruciani's suit reflects incredibly poor judgment on the behalf of someone who professes to be an experienced trial lawyer." Sims alleges, "His own conduct when he was at Baron & Budd -- not alleged misrepresentation -- was the cause of his not making shareholder, and our own counterclaims against Mr. Cruciani are serious and sound, and we intend to obtain a verdict on them."
On April 13, 68th District Judge Martin Hoffman denied a summary judgment motion filed by Cruciani that claimed that there was no evidence to support Baron & Budd's counterclaims. Additionally, Hoffman dealt Cruciani's case a blow when he granted a defense summary judgment motion that knocked out three of Cruciani's negligent misrepresentation claims.
• Cruciani alleged in his second amended petition that Budd promised him that he would head the firm's commercial litigation group and would "make the hiring and firing decisions." But Cruciani alleged he was not able to make such decisions. Ten months after he was hired, Baron & Budd laid off a third of its staff, virtually eliminating the commercial litigation group, despite Cruciani's protests, he alleged.
But at the April 13 pretrial hearing before Hoffman, V&E associate Daniel Tobey, who represents Baron & Budd, argued that that negligent misrepresentation claim should be dismissed because it was barred by a two-year statute of limitations.
"Mr. Cruciani has to convince us that someone who comes to a law firm can't discover that he doesn't have the authority to hire and fire within two years of arriving at the law firm," Tobey argued.
"I think the hiring and firing is discoverable," Hoffman ruled. "I'm going to grant summary judgment on that."
• The defendants also challenged Cruciani's assertions that he was misled by a statement Budd made to him before Baron & Budd hired him. According to Cruciani's second amended petition, Budd allegedly told Cruciani the firm was "right-sized" and he had plans to grow and expand the firm. But Budd already had plans to downsize the firm, Cruciani alleged.
"What does 'right-sized' even mean?" Hoffman asked Hartnett.
"It means we are not laying off," Hartnett responded. "To have a guy saying they are 'right-sized' at the very moment he's planning layoffs -- that's a lie."
"That's puffery," Hoffman responded, and he later granted summary judgment eliminating that negligent misrepresentaion claim.
• Cruciani also alleged in the petition that Budd misled him about the firm's compensation system known as "Hully Gully." Budd allegedly told Cruciani that at his firm "everyone was in this together, no one was greedy" and there was plenty of money to go around, Cruciani alleged. Budd also explained that he made all of the compensation decisions and that generally none of the shareholders or senior counsel at the firm knew what each other made, as alleged in Cruciani's petition.
Specifically, at the hearing the lawyers fought over whether Cruciani was misled by Budd's alleged statement to him that "pigs get fat, and hogs go to slaughter, and I'm not a hog."
"There is nothing misleading about 'I'm not a hog, and you will do well here,' " Phelan argued.
"I think that's too vague to be supportable," Hoffman responded. "The statements about 'I'm not a hog' are too vague -- summary judgment is granted."
It is unclear whether Hoffman's ruling will prevent jurors from hearing about Budd's alleged $50 million bonus.
After the hearing, Sims said in an interview that Hoffman's summary judgment rulings in favor of the defendants "significantly" narrow the case.
However, Hartnett says he does not believe the rulings hurt Cruciani's case and there are still negligent misrepresentation claims left.
The trial, which began on April 13, is expected to last two weeks.