A courtroom victory is turning into a nightmare for Akin Gump Strauss Hauer & Feld after the firm discovered that a client’s case was premised on deceit.
Akin Gump told a judge Wednesday that its client, a software developer called LBDS Holding Company, fabricated evidence in order to win a $25 million jury verdict earlier this year in the Eastern District of Texas. The scheme was laid bare when Akin Gump asked to withdraw from the case and its adversaries urged the judge to toss the verdict.
“Akin Gump now knows that it offered false evidence and testimony in the record in this litigation,” Akin Gump’s Sanford Warren Jr. wrote in Wednesday’s withdrawal motion. He told U.S. District Judge Leonard Davis that LBDS’ CEO admitted to the firm last week that its damages theory was built on a phony contract and fake emails, and that LBDS is under investigation by federal prosecutors and the U.S. Federal Bureau of Investigation.
The defendant, South Korea’s ISOL Technology Inc., is now all but certain to escape the $25 million verdict. ISOL’s lawyer, James Walker of Cole Schotz Meisel Forman & Leonard, said in an interview that the verdict posed an “existential threat” to ISOL, which manufacturers magnetic resonance imaging (MRI) machines.
In an emergency motion for sanctions also filed on Wednesday, Walker argued that “the only appropriate civil sanction for LBDS’s egregious, bad-faith conduct is setting aside the verdict, dismissing LBDS’s claims with prejudice, and ordering LBDS to pay defendants’ attorney fees incurred in this frivolous lawsuit.”
In 2008 Dallas-based LBDS entered into a contract to supply software to ISOL for use in its MRI machines. In a 2011 complaint, LBDS alleged that ISOL breached the supply agreement and misappropriated trade secrets. The company’s lawyers at Akin Gump claimed that ISOL’s alleged breach caused LBDS to miss out on a $25 million business opportunity with a health care IT company called Cerner Corp.
To back its allegations, LBDS pointed to a purported email exchange with Bill Gish, the director of business development for Cerner, in which Gish promised that Cerner would buy software from the company that later became LBDS. LBDS also unveiled a contract with Cerner that contained a minimum purchase requirement clause.
On March 12, jurors awarded ISOL $24.4 million in lost profit damages on the contract claim, plus $760,000 in compensation for trade secrets misappropriation and unfair competition, suggesting they bought LBDS’ theory about the lost Cerner opportunity. Akin Gump had staffed four partners on the trial, including former Eastern District of Texas judge Charles “Chad” Everingham IV. ISOL, on the other hand, was represented only by Walker and his associate Justin Levy. Walker said the verdict was a decent result for ISOL given the resource disparity and the fact that LBDS had once sought $60 million in damages.
Things began turning upside down on May 2, when Walker said he received a voicemail from an anonymous caller. The message suggested he speak to an FBI agent regarding LBDS, and Walker eventually learned that LBDS was suspected of lying about its business opportunity with Cerner. While Cerner is a real company and Bill Gish is a real person, Cerner says it never made a deal with LBDS worth $25 million, that the purported contract is a fake and that the Bill Gish emails were forged.
On May 14 Walker served Akin Gump with a draft motion for sanctions against LBDS that included affidavits from several Cerner employees, including Gish. Following the relevant rule of civil procedure, Walker waited until Wednesday to file the sanctions motion with the court so that Akin Gump would have an opportunity to confront its client and respond to the allegations.
In its withdrawal motion, Akin Gump says that Warren, the partner who brought the case to the firm, immediately sought to confront its client and eventually reached LBDS CEO Albert Davis by phone on May 15. According to Akin Gump, Davis told Warren that the allegations in the sanctions motion were “essentially correct.” Akin Gump also said that Davis admitted to setting up a fake domain name, Cernerinc.com, and sending emails from that domain name. (Cerner’s actual website is Cerner.com.)
In a statement to the Litigation Daily, Akin Gump general counsel Barry Chasnoff said the firm was “shocked” to learn of the fraud. “Akin Gump prides itself on approaching each representation with the utmost in integrity and professionalism, and we are deeply disturbed by LBDS’ actions,” he said.
Walker said that LBDS’ modus operandi was to find real people and then create fake communications from them. That way, the case would survive a basic vetting process. “There was a half-truth to everything they said,” Walker told us.
As for Akin Gump, Walker said he believes the firm had no idea that evidence had been fabricated. There were a lot of counsel changes in the case—Akin Gump took over for McKool Smith in early 2013, and Cole Schotz took over for Susman Godfrey a few months before trial. As a result, a lot of depositions were done late in the game, potentially keeping the truth under wraps.
“I think Sanford and Chad are fine lawyers,” Walker said. “It’s just unfortunate what happened. But it’s also unfortunate for my client. This verdict just about ruined my client’s company.”