CLARIFICATION: An earlier version of this article named Richard Berman as a TD Bank in-house counsel identified by Judge Cooke in the sanctions order. It was not Corporate Counsels intention to imply that Mr. Berman was implicated by the Court with involvement in any of the discovery misconduct that gave rise to the sanctions. He was not. In fact, he was only mentioned in the order as a recipient of an email prior to the litigation that later became the subject of a discovery dispute in the litigation. Mr. Berman had left TD Bank prior to the institution of the underlying lawsuit, and therefore was not involved as an attorney in the defense of the litigation.
After a thorough review of the evidence, a Miami federal judge last week publicly reprimanded TD Banks in-house legal team for blatant discovery violations in a lawsuit brought by investors defrauded in the Scott Rothstein Ponzi scheme. Criticizing the banks in-house counsel for being conspicuously absent from any involvement in supervising or assisting in the litigation of the matter, U.S. District Judge Marcia Cooke issued an order [PDF] that sanctioned the bank and outside counsel Greenberg Traurig for a pattern of discovery abuses before, during, and after trial.
The case at hand was filed by Corpus Christi, Texas-based Coquina Investments LLC, which charged former lawyer Rothstein with fraud.
Vincent Catanzaro, global discovery manager for DuPont, says that for an in-house lawyer thats the worst thing you want to have written about you. In-house counsel are supposed to resolve issues for the company, he adds, not be a hindrance.
In Catanzaros experience, judges dont take too kindly to companies making misstatements about the completeness of their document production and otherwise failing to comply with discovery obligations. Cooke determined TD Banks legal team willfully failed to meet those obligations and didnt help its outside counsel conform to the Federal Rules of Civil Procedure and Federal Rules of Evidence.
The judges order is the latest in an ongoing legal saga revolving around Rothstein. A jury awarded the Texas-based Coquina Investments LLC $67 million in January. In the verdict, jurors found the bank knowingly aided and abetted Rothstein in his fraudulent scheme. The now ex-lawyer was running his scam through numerous accounts at the Cherry Hill, NJ-based TD Bank.
Fifteen of the banks in-house lawyers were involved in defending the case, and the judge took issue with their lack of management of the trial. In-house counsel did not participate in preparing witnesses for deposition or trial, she said in her order, and they appeared to be inadequately involved in reviewing documents prior to trial.
Cooke ordered the bank and the firm to pay attorney fees associated with Coquinas motion for sanctions. And, for the purposes of appeal, she established as fact that the banks monitoring and alert systems were unreasonable and that the bank had actual knowledge of Rothsteins fraud.
Coquina learned in April, through another investor litigation, that Greenberg produced a black-and-white document at trial identifying certain Rothstein accounts as high risk. The words were barely legible for jurors, but in the documents original electronic form, the words appeared in red. Cooke said that it was unknowable how jurors were influenced by what she called a glaring difference in the trial version of the document.
The judge said only TD Bank could have known how the document appeared in its native form. Although both in-house and outside counsel said the production error was inadvertent, she held the banks in-house lawyers involved in the case responsible.
That was almost pivotal to what TD Bank knew, says Catanzaro. The question is, did they do it intentionally? The best-case scenario, he says, is that what happened was simply a mistake that nobody caught in time.
While its not unusual to have more than one outside firm working on the defense of a single case, Catanzaro stresses the need to have someone coordinating the effort. If youre going to have multiple parties assisting, somebody needs to be involved who is coordinating all the moving parts, he says. Because when the proverbial left hand doesnt know what the right hand is doing, Catanzaro notes, problems can and do happen.
In TD Banks case, the left hand apparently didnt even know there was a right hand. Greenbergs lawyers had no idea that another firm, Sullivan & Cromwell, was using consultants to review the Rothstein accounts. The bank didnt inform Greenberg of any of the consultants findings. Cooke slammed litigation department head Leo Doyle for never informing Greenberg of the nature of Sullivan & Cromwells and the consultants work, even though it went to the heart of this litigation.
Cooke also took issue with both the bank and Greenbergs failure to identify the existence of a standard investigative protocol, a policy for dealing with suspicious account activity. Members of the banks due diligence department submitted affidavits to the court indicating there was no such policy in place.
The judge chose not to sanction any individual lawyers involved in the litigation. Catanzaro wasnt surprised. Judges have their roots as lawyers, too, he says, adding that they tend to sanction individuals only in the most egregious circumstances.
Catanzaro points out that with so many lawyers working on the casemore than 200 attorneys from Greenberg played a role in defending the caseit would have been difficult to attach blame to specific attorneys. Any component of the document production, he says, would have been touched by a team of people, making it hard to determine who exactly was in charge or at fault.
Catanzaro says it is unlikely that any in-house counsel would lose their jobs over the sanctions, although the department might not escape entirely unscathed. The sanctions against the bank could lead to a pretty significant review of how the in-house lawyers operate. The bank could look to the legal department and say, Hey, we may need to make some changes here.
Stay tuned for Part II of CorpCounsel.coms look at the TD Bank story, with a discussion of internal compliance failures and how the bank could have worked to prevent the massive jury verdict.
See also: Judge Orders Greenberg Traurig, TD Bank to Pay Fees to Rothstein Investor Attorneys, Daily Business Review, August 2012; and New TD Bank Emails Show Early Exchanges on Scott Rothstein, Daily Business Review, June 2012.
