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WASHINGTON � A Houston criminal defense attorney recently won a multimillion-dollar jury verdict in an unusual civil fraud case against a company that � under pressure from a U.S. attorney’s office � refused to pay his attorney fees for representing its accounting executive despite company bylaws providing for payment. State District Judge Sharolyn Wood on May 25 entered judgment on the jury’s $2.5 million verdict against the energy company, Dynegy Inc. Evidence at the trial showed that the U.S. attorney’s office in Houston had pressured Dynegy with a threat of indictment into denying fees to Terry W. Yates, who was representing Dynegy official Jamie Olis in a 2003 trial on fraud charges. The jury awarded Yates $500,000 in fees and recommended that Dynegy pay $2 million in punitive damages. Yates v. Dynegy Inc., No. 2005-37892 (Harris Co., Texas, Dist. Ct.). Attorney fee claims usually are brought as contract actions or as equitable proceedings under the law of the company’s state of incorporation, said white-collar crime scholar Peter J. Henning of Wayne State University Law School, noting the unusual filing of the civil fraud action on his white-collar crime blog. ‘A fly on a camel’ Yates’ attorney in the civil fraud action, Lloyd Kelley of Houston, said the civil fraud approach was “more advantageous” for several reasons. “Companies are not very frightened of contract actions,” he said. “A Fortune 500 company like Dynegy says the amount we were seeking is materially and statistically insignificant to them, so they might as well not pay you.” Kelley added, “They didn’t care about settling. You’re like a fly on a camel.” But what is basically a theft finding by a court � theft of services � he said, is “very material.” That finding could be used in every lawsuit that gets filed against a company to challenge its credibility, he said. In the last four years in Texas, he added, if you can prove theft of services, you can avoid the state law’s cap on punitive damages. “The novelty of the approach was designed to get [Dynegy's] attention and drive up the risk,” Kelley said. Dynegy, which was represented by Bruce D. Oakley of Washington-based Hogan & Hartson’s Houston office, “is planning to vigorously appeal the judgment,” said company spokesman David Byford. Since 1995, he added, the Texas Supreme Court has never upheld a punitive damages award exceeding the statutory maximum of two times actual damages. In his unsuccessful motion asking the judge not to render judgment on the jury’s verdict, Oakley said, “At most, the evidence in this case indicates an oral promise and nonperformance . . . .That is a breach of contract, at most, but it is not fraud � and it is certainly not felony theft beyond a reasonable doubt.” Dynegy’s Olis was convicted and sentenced to 24 years in prison � reduced on appeal to six years. The company was never indicted. The U.S. Department of Justice, in its so-called McNulty Memorandum on the charging of corporations and waiver of attorney-client privilege, no longer treats payment of attorney fees for employees as a sign of lack of cooperation with a federal investigation.

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