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Ordinarily, the public hears Lanny Davis interpreting someone else’s crisis. Instead, this fall the one-time scandal manager for former president Bill Clinton has been sweating through an imbroglio of his own. In early November, just as he was moving his practice to a new firm, Davis trudged up Capitol Hill to discuss his work trying to mold public opinion to help the HealthSouth Corp. Members of Congress had been suggesting that Davis tampered with an internal investigation at the troubled hospital corporation. As part of the House Energy and Commerce Committee’s probe into multibillion-dollar accounting fraud at HealthSouth, the committee is scrutinizing a review conducted by Houston’s Fulbright & Jaworski last year. The investigation’s purpose was to examine allegations that Richard Scrushy, the HealthSouth CEO, had traded $100 million in stock on inside information. Scrushy first had hired Davis and partners at Washington, D.C.’s Patton Boggs to coordinate the company’s legal defense. In turn, Davis hired Fulbright. To back up the tampering hypothesis, the House committee released e-mail messages that showed Davis arguing with Fulbright over its review [go to americanlawyer.com for a link to the e-mails]. These arguments highlight the perils of having law firms conduct probes that might better be left to investigative firms. Conflicts arose first over whether lead Fulbright lawyer Hal Hirsch would give Davis a preview of his investigative conclusions. Davis told Congress on Nov. 5 that his goal was only to get a head start creating a media plan. Their fighting continued after press releases went out, when Davis insisted to HealthSouth officials that Fulbright had done all it could and should pass its work over to the Securities and Exchange Commission. Davis says he was not tampering, but fulfilling his unusual role as both a lawyer and a press spokesman. Davis promotes his crisis management practice as extending beyond law into public relations, and he had convinced Scrushy to waive attorney-client privilege in order to cooperate with the SEC. In an interview, Davis says that when he heard Hirsch’s report the first time, he learned that Hirsch’s team had found evidence that documents were shredded. He urged the Fulbright team to dig more on this point, lest the press or the SEC jump all over the company. “You can’t just have a sentence about shredding in a report like this,” observes Davis. Once Fulbright dug more and completed its report, Hirsch and Davis promptly butted heads over the public statements. In a release co-authored by Davis, HealthSouth told the press that Scrushy “was cleared by an outside investigation conducted by a national law firm of all allegations.” That interpretation went too far for certain Fulbright lawyers, and Hirsch demanded a second, clarifying statement. After four days of squabbling, the company sent out a new release that repeated caveats from the first statement and added at Fulbright’s insistence: “All other public statements are analyses by others.” True to form, Fulbright and Hirsch declined to comment.Then came the dispute over money. Hirsch wanted to finish analyzing the shredded documents that his team had found — he thought issues remained. Davis argued that Fulbright had completed its job. “A million and a half dollars in legal fees later, we thought that the SEC was in the best position to continue the investigation,” Davis says. Hirsch resisted — “Have you ever seen what happens to a lawyer when he’s at the trough?” says Davis — and argued to Scrushy that his firm still had work to do. In a kiss-off e-mail, the CEO rejected Hirsch soundly, adding, “This noise you made in the past few days demanding payment really makes me mad as hell.” Law firms currently have a booming practice selling their investigations to nervous corporations. “Internal investigations are the PR ploy du jour,” says James Haggerty, an attorney who runs The PR Consulting Group. Behind the scenes, a PR coordinator might have had a less contentious experience had he hired white-collar private investigators, who are more used to digging than lawyers, and less concerned with what press releases say. “Lawyers, by and large, perceive communication as something they do,” Haggerty writes in his recent book, “In the Court of Public Opinion.” Davis preferred using some lawyers for this situation, though. “Lawyers are trained at fact-finding, at digging into documents that are legalistic and hard to figure out,” says Davis, who recently moved to the D.C. office of Orrick, Herrington & Sutcliffe, which he says has more appropriate litigation for him to work on than Patton Boggs does. Despite the squabbles, Davis contends, Fulbright’s probe did the job. In an overwrought e-mail reply to Scrushy, Hirsch wrote, “My work is and has been your salvation,” adding, “The review is as good a result as any company in this environment could have as a tool.” Much has changed since he wrote those words in November 2002. Like Davis, he changed firms, to Greenberg Traurig. This spring, of course, the HealthSouth scandal exploded, revealing doctored books and questionable management. On Nov. 4 the U.S. Department of Justice indicted Scrushy, accusing him of masterminding the fraud. Davis stopped working for Scrushy last January. But he points out that, despite everything that has happened, the Fulbright report that “cleared” Scrushy still seems to be accurate. The feds charged Scrushy with 85 counts, but not one of them was insider trading. A small salvation, indeed.

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