In early July, Tiner gave a copy of the diary to Goldberg, hoping it would force the firm to take action against Perrin. Goldberg forwarded it to Hoffman and Richard Garrett, the firm’s general counsel.

In August, the situation in the Los Angeles office changed from chronic to acute. Over the next couple of months, the mood in the firm would get uglier, and the divisions would deepen.

Hoffman and Beaber met on August 7. According to Beaber, this was when Hoffman told him about Perrin’s “unquestionably unethical” conduct and “disbarable offenses.” Hoffman, however, has a totally different take on the meeting. “Beaber said to me, out of the clear blue, that he was a friend of Carol, that he knew that I was doing this investigation, and that he wanted me to know he wasn’t concerned about it and didn’t think we should be either. I didn’t tell him what my conclusion was in any respect.”

Hoffman says that the next morning, he told Beaber, Goldberg, and Perrin that “from where I stood at the time, it looked to me like there was substantial evidence to indicate that there may not be a problem.” Then, according to Beaber and Goldberg, Hoffman went on to announce his intention to investigate the litigation associates in the office for padding their hours. As part of that investigation, he told them he was requesting the building parking records in order to determine the hours they were in the office. The allegations against the associates were totally baseless, according to virtually every shareholder in the office. Hoffman denies that there was ever an investigation.

“When I left that meeting, I was confused,” says Beaber. “I couldn’t understand how he [Hoffman] could reverse himself so totally, so quickly. The more I thought about it, the madder I got.” Late that night, he sent out the e-mail declaring the “dramatic shift in firm affairs,” and calling a meeting of all the lawyers in the office to announce that shift — his resignation as co-managing shareholder.

The next day, Beaber made his announcement to the assembled staff, then let loose, calling the firm chairman a “pathological liar” and a “malicious bureaucrat.” He also gave a full briefing on the investigations of Perrin and the litigation associates. The meeting lasted about 20 minutes; the reaction in the room was stunned disbelief. “It was the single most surprising, unbelievable thing I’ve seen in 20 years as a lawyer,” says shareholder George Belfield, another of Goldberg’s premerger partners. Hoffman declines to comment on Beaber’s characterizations.

Looking back, Beaber can only speculate about the cause of what he saw as Hoffman’s reversal. “Carol always told me that she had friends in Miami,” he says. “And I think she convinced Hoffman that without her, the Los Angeles office would fall apart. She might have been right — she was the biggest source of revenue in the office.”

Beaber expected to be “summarily fired” when word of his diatribe got back to Miami. Instead, Hoffman focused on the other shareholders, whom he blamed for not speaking out in his defense. At a meeting the next week, Hoffman told Goldberg, Steinberg, Scott, and Belfield to write a memo expressing support for himself and the firm, and denying that an investigation of the litigation associates’ billing had ever been discussed. He even gave them notes specifying the contents of the memo. According to a copy of the notes, Hoffman requested that the lawyers state “GT and it’s [sic] management have demonstrated the very highest integrity on all matters at all times,” and that “there is no investigation of associate hours.” Concerned that Goldberg would try to undermine the message, Hoffman warned against “sub rosa communication,” and “winks of eye.”

Several drafts of the memo went to Miami for Hoffman’s review, but they didn’t meet with his approval. Finally, Hoffman e-mailed Goldberg that if he couldn’t make the statements specified in his notes, “it would be in everybody’s best interest that we hold friendly and civil discussions with a view toward separating your group from the firm.” Under that cloud, Goldberg, Steinberg, Scott, and Belfield circulated a memo that included the statements specified by Hoffman. It came to be known around the office as the “hostage memo.”

The “hostage memo” was the last straw for Goldberg. He says he’s very protective of the people who work for him, so denying the investigation of the associates was particularly galling. On the morning of Sept. 11, Hoffman and Goldberg had a polite, anticlimactic meeting. Hoffman said that he had cleared Perrin, and Goldberg responded, “If that’s your decision, then I have to go.” But his exit did little to quell the noxious atmosphere. Rumors linking Goldberg romantically with a number of women in the office started almost immediately, prompting Beaber to e-mail Hoffman: “[You have] asserted that Mr. Goldberg left the firm because Ms. Perrin had rejected his further sexual advances … . You apparently are involved in a defamatory campaign against Mr. Goldberg.”

In previous e-mails to Hoffman, Beaber had written, “I have witnessed you [Hoffman] directly lie to shareholders and associates regarding our private conversations.” He accused Hoffman of being in a “conspiracy, after the fact, to cover up acts of fraud,” and of being “more interested in protecting the firms [sic] fragile reputation than standing strong against wrongful and despicable conduct.”

He made a point to copy all attorneys in the office when he sent the messages and, by this time, his e-mails had become notorious. “I was in Florida taking depositions for a lot of the summer,” says shareholder Jeff Scott. “These e-mails to Hoffman would appear out of nowhere. They were incredible.” Eventually, Hoffman ordered a computer technician to delete the “L.A.-All” address from Beaber’s e-mail program. Beaber simply borrowed another computer in the office, and continued his electronic assault.

Hoffman declines to respond to Beaber’s charges. But the firm showed no such reticence in April, when it answered a complaint filed against it by Tiner for a number of labor violations. Although Beaber isn’t a party to that suit, the answer takes a number of shots at him personally. It says that Beaber’s conduct “often bordered on bizarre,” that he was engaged in “disruptive activity,” and that he “became aggressive and obnoxious and his physical demeanor reflected that of a disturbed individual.” Beaber responds: “If it’s bizarre to act independently and with a bit of integrity, then I plead guilty.”

Hoffman intended his investigation to settle the question of Perrin’s billing. In his preliminary report, prepared in September, Hoffman concluded: “[Perrin] did not engage in a fraudulent practice and … it is highly unlikely that any client has been overcharged or materially misled.” He based his conclusion on his finding that Perrin’s billing method was reasonable: “[H]aving other members of the group keep accurate time on all the matters that they worked on and then using their summaries and entries as a basis for recalling the time that she had spent is a reasonable basis for collecting her time given the very close work groups that existed.” Hoffman reached the same conclusion in his final report, which he completed about a month later. No money was ever refunded to the clients.

Perrin sees Hoffman’s report as vindication. In her statement to The American Lawyer, she wrote: “I always put the interests of my clients first, and I am gratified that Greenberg Traurig’s extremely thorough, intensive, and unbiased investigation has proven this to be true.”

Hoffman says he reviewed all billing documents and invoices for the year 2000. He also claims to have interviewed everyone with knowledge about the billing, but this is disputed by the subjects of those alleged interviews. For instance, Hoffman says that he interviewed Deborah Fox, but she denies that he ever asked her about the billing, even though it was her report to Matt Steinberg that set the investigation in motion. He admits that he didn’t interview Dewonda Flowers, who actually prepared the bills for Perrin and who often spoke with her clients.

And his report includes the summary of an interview he allegedly did with paralegal Sharon Coryell, in which Coryell exonerated Perrin. But at the time the report was written, no such interview had taken place. Looking back, Hoffman says that he accidentally summarized the Tiner interview under the “Coryell” heading. But the report refers to the person interviewed as a “probate paralegal.” That description applies to Coryell, not Tiner, whom Hoffman once referred to as a “mere typist” during a shareholders’ meeting.

Hoffman’s office in Miami contains 10 thick binders that he says hold the materials produced by these interviews and the rest of his investigation. He’s clearly not happy that the issue consumed so much of his time, which begs the question, “Why not hire an independent auditor?” — as Goldberg had asked. Hoffman says he wanted to conduct the initial investigation himself, and only refer it out if he made the initial conclusion that further scrutiny was required.

But The American Lawyer decided to hire its own outside observer. The Devil’s Advocate has conducted hundreds of audits for both clients and firms; courts have admitted its findings dozens of times. The firm cautioned that it lacked the information to conduct a formal audit, but its conclusion, based on thousands of Perrin bills between January and July 2000, is damning: “Clients were charged for work under Ms. Perrin’s name and at her hourly rate that was actually done by others, who billed, if at all, at lower rates.”

The auditor said that it was able to ascertain both the method used by Perrin, and her attempt to conceal it: “We could trace the entries, e.g., by noting that Perrin’s handwriting appeared on original records for time apparently recorded by each of the others [Newman, Coryell, and Tiner] and by following the entries into the GT printout and bills. In many instances, Perrin’s name was inserted on the other person’s time record, and the time appears verbatim or nearly verbatim in the GT printout and corresponding client bills. Of the original time entries that were altered, apparently in Ms. Perrin’s hand, typical alterations include deletion of references to herself (thereby avoiding sending the client a bill in which she appeared to be talking to herself) … . While there may also be benign explanations for these particular alterations, they are also consistent with an effort to conceal the original source of the time entries.” The auditors also reviewed Hoffman’s report, and found that “the conclusions by the author are not supported by the evidence summarized nor by what we have seen.”

By examining the month of April 2000 in depth, The Devil’s Advocate reached more specific conclusions about the alleged fraud. Perrin is credited with 203 billable hours in Greenberg’s computerized system. Of that, 94.6 hours was work that initially appeared on the time sheets of Newman, Coryell, or Tiner. If billed at Perrin’s standard rate of $375 an hour, that would equal $35,375. Of the 203 hours entered into the Greenberg system, The American Lawyer has client bills that account for 65.8 hours. (We weren’t able to get the rest.) All of those 65.8 hours were billed as Perrin’s time; more than half of that time initially appeared on the time sheets of Newman, Coryell, or Tiner.

Hoffman issued a statement that disputes The Devil’s Advocate’s report on a number of grounds — some drawn from his own investigation, some based on what he calls an “educated guess.”

His statement:

One must measure the very qualified conclusions of The Devil’s Advocate letter against Greenberg Traurig’s 300-plus-hour extensive investigation. The Devil’s Advocate based their qualified findings upon a few limited and misleading “documents” that were obtained by The American Lawyer from a disgruntled former employee. The Greenberg Traurig investigation included a complete review of hundreds of bills, files, logs, and interviews with all of the key relevant individuals. Based on this thorough investigation, we stand by our firm conclusion that clients were not overbilled or misled by this lawyer. To come to a different conclusion based on an extremely limited review by The Devil’s Advocate would be unfair.

Hoffman makes two additional arguments in defense of Perrin. First, he says that many of her clients were billed on a flat-fee basis, so that the accuracy of the time records is irrelevant. At times, he says, invoices were prepared for internal purposes only, and don’t reflect the fee actually charged to the client. But, after first agreeing to do so, Greenberg failed to provide a detailed breakdown of how many clients were charged on an hourly basis, and how many were billed a flat fee.

Second, Hoffman says that he received hundreds of detailed explanations from Perrin about thousands of time entries. This explanation of a February entry is typical: “I received a fax regarding accounting, which I read and gave to Sheila to fax to Coryell and I spoke with the accountants doing the returns, which information I also gave to Sheila to convey to Coryell. I billed for my time, which had a description ‘reviewed fax and telephone call re accounting’ at .2 for both.”

That explanation was made in October about 12 minutes of work done eight months earlier. Hoffman acknowledges the credibility questions. “Obviously, I was wondering how anybody could be that good at recalling things. And, look, you can never be sure. You weren’t there. But she had good recall, and there was a lot in the client files.”

The repercussions from the Perrin controversy touched virtually everyone who had been on hand when the office opened. In October, Perrin was replaced as managing shareholder. “She had to make a substantial change in her management style when she moved from her office to our office,” Hoffman says. “We made a mistake in expecting her to rise to the occasion of a larger office.”

A couple of months later, in December, Beaber paid the expected price for his outspokenness. One day he returned to the office from lunch only to find a security guard standing outside his office, barring his entry. He eventually had to threaten a lawsuit in order to get his possessions back. He has since returned to his solo practice, and continues to threaten a suit against Greenberg. Deborah Fox is also threatening a suit. She resigned in October, and is raising horses with her husband on a ranch near Bakersfield, Calif. Sheila Tiner resigned in February 2001, and has a suit pending against Greenberg, alleging a number of labor violations. Greenberg has denied those allegations.

Although he once suggested to Hoffman that he and the firm “quietly separate,” Goldberg didn’t go quietly. As he had done with McCambridge, Deixler and Fingerhut, Goldberg sued Greenberg Traurig, and Perrin and Hoffman individually, for fraud, breach of his shareholder agreement, and breach of fiduciary duty. The complaint was filed in early February; the case settled three weeks later. Citing a confidentiality agreement, neither Goldberg nor Hoffman will discuss it.

Goldberg was the most visible person in the office while the Perrin controversy was raging, and speculating about his motivation is a favorite diversion for many of those involved. Perrin and Hoffman think he wanted to run the office. Perrin’s statement reads: “This entire matter was concocted and continues to be fueled by the personal animus of a couple of disgruntled lawyers and previous employees, who, among other individual personal agenda goals, attempted to take control of the office and failed.”

Goldberg denies his interest in management, and Matt Steinberg agrees. “Steve wasn’t bucking for promotion,” he says.

A few shareholders question whether bad feelings about his romantic relationship with Perrin were a factor. “He’s vindictive, he’s motivated by hatred,” says one. Goldberg dismisses the idea, and Steinberg, Scott, and Belfield point out that the relationship ended on what seemed like good terms, and that they never saw any indication that either one wanted to start it again.

On the other hand, many people agree that Goldberg’s loyalty to the staff was a big factor. “I’m sure he was out to protect people. I’m sure he was out to protect the litigation associates,” says Belfield.

Goldberg says he wanted to disassociate himself from what he saw as unethical conduct: “In part, it was selfish. For my own reputation, for my own standing in the community, I didn’t want to be at a firm where clients were being systematically overcharged. In part, it was altruistic. I didn’t like the idea that clients were coming to an office that I was part of, and were being taken advantage of.” He has returned to Manatt Phelps & Phillips. Three associates, the office manager, and a paralegal followed him.

One victim of the controversy is the relationship between Goldberg and his former partners. They were close friends for many years, and had been through two big professional moves together; founding Goldberg Scott, then moving to Greenberg Traurig. Now they don’t speak. Much of Scott’s, Belfield’s, and Steinberg’s anger comes from Goldberg’s complaint against Greenberg, which was unusually detailed and included the merger agreement between Goldberg Scott, and Greenberg Traurig, and its financial information, as an exhibit. Goldberg says that he did it to gain a litigation advantage, and points to the quick settlement as vindication. But Scott, Steinberg, and Belfield see it as a conscious decision to slam Perrin and the firm, not caring who else got hurt.

“We’d been friends for 20 years, our wives were friends, our kids were friends,” says Steinberg. “By writing that complaint, he burned it all off.” To Goldberg, this was the biggest cost of his candor. “I didn’t want to lose my friends over this,” he says.

Greenberg’s Los Angeles office is now a success, say Hoffman and Alvarez. It has grown to about 35 lawyers, and moved to plush new offices in Santa Monica, Calif., early this year.

The office continues to experience turnover, however, and the controversy didn’t win Perrin many friends in the office or among firm management. “She’s caused me a lot of trouble,” says Hoffman. “I have a lot of disappointment.”

Hoffman and Alvarez say that the problems in Los Angeles must be seen in light of the firm’s wildly successful expansion, which has boosted revenue 300 percent since 1997. “In the context of our growth, this is a minor cost,” says Alvarez. Would he do it again? Absolutely. “The benefits we’ve achieved far outweigh the relatively minor costs. You’ve got to view this in a business context.”

And he and Hoffman are unrepentant about backing Perrin. “Getting rid of Perrin would have been the easy thing to do,” says Alvarez. But he says that Perrin “didn’t commit billing fraud,” and that they refused to sacrifice her merely because she was “sloppy” or had unpleasant personality traits.

Alvarez and Hoffman did take the charges against Perrin and the firm seriously. In April, Alvarez visited The American Lawyer offices to tell his side of the story. Alvarez visited again in May, this time accompanied by Larry Hoffman, who was lugging a suitcase full of dog-eared billing records. Hoffman talked about a cabal arrayed against himself and Perrin, and said he was surprised at the virulence of it. “At first, I didn’t fully realize how much a conspiracy I was facing,” he said. Alvarez, meanwhile, was careful to defend his partner’s honor: “My biggest issue has been what Larry went through. I’ve seen people question his character and his integrity, and that’s been painful to me personally.” As they recounted the past year, they talked like veterans of “open warfare,” like two soldiers who had been under sniper fire from hidden locations. “It hurts,” said Hoffman.

It surely must. Especially since so many of the wounds were self-inflicted.