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Steel Hector & Davis, the powerhouse Miami law firm, is smarting from a federal judge’s findings that detail the conflicts, cozy relationships and questionable legal work behind the firm’s involvement in a controversial $92.3 million payout mostly to top executives of FPL Group Inc. A handful of top FPL executives hit the jackpot in December 2000 when shareholders approved a merger with New Orleans-based Entergy Corp., another public utility holding company. Under FPL policy, such a “change of control” triggered lucrative, performance-based payouts totaling $62 million for eight high-ranking FPL executives. But the deal fell through four months later amid recriminations on both sides. And angry shareholders soon went to court to demand the return of that $92 million to FPL’s treasury. Steel Hector, led by partner Alvin B. Davis, was hired by a three-person committee created by FPL’s board of directors in the spring of 2001 to serve as its counsel as it studied the payouts after shareholders started filing lawsuits. Ultimately, that committee found no wrongdoing and recommended the board seek the dismissal of separate shareholder lawsuits then pending. But in a January order allowing the shareholders’ lawsuits to continue, U.S. District Judge Alan S. Gold found the hiring of Steel Hector stacked the deck in favor of the FPL executives. “The choice of Steel Hector carried with it some obvious conflicts,” Gold wrote. Gold’s 50-page order denied FPL’s motion to dismiss the consolidated shareholder action that grew out of three lawsuits filed by five shareholders. The motion had asserted a variety of technical reasons as to why the shareholders’ suits were legally deficient. To support his ruling to keep the shareholders’ complaints alive, Gold spelled out three significant Steel Hector conflicts, including the fact that as late as 1999, the law firm had been heavily involved in developing the “change of control” language in FPL’s compensation policy at issue before the committee. In addition, Gold wrote, Steel Hector was recommended for the job by FPL general counsel Dennis Coyle, who’d pocketed more than $6 million in change-of-control payments. Coyle was a Steel Hector partner when FPL chairman and chief executive James L. Broadhead — who himself banked $22.7 million in change-of-control cash before retiring in 2001 — recruited him to become FPL counsel in 1989. “No other outside counsel was considered,” Gold said. Attorney Davis, however, said in a written statement released through a Steel Hector spokeswoman that the firm believes it acted appropriately. “There was no apparent conflict at the outset. As our investigation revealed what could be considered the appearance of a conflict, and only the appearance of a conflict, we immediately notified the committee and withdrew,” Davis said. “New counsel conducted the entire investigation and to our knowledge did not rely in any manner on the preliminary work we had done.” But shareholder attorney Harvey W. Gurland Jr. of Miami said it was the shareholders’ legal action that apparently raised the committee’s consciousness about the conflict issue. “That really brought to the forefront that this was a serious matter that needed their attention,” said Gurland, a partner at Duane Morris in Miami. Judge Gold’s order said the committee hired new counsel, Wilmer Cutler & Pickering of Washington, D.C., eight months into its deliberations after “belatedly” recognizing that Steel Hector was conflicted. And after noting that Wilmer Cutler did go back over much of the work done earlier by Steel Hector, Gold specifically rejected FPL’s argument that “any inherent problems with Steel Hector’s representation were cured by the appointment of Wilmer Cutler.” Gold’s order also took issue with the quality of some legal advice Steel Hector gave to the FPL committee. At the outset, Steel Hector advised three FPL outside board members on the committee — Miami developer Armando Codina, Fort Lauderdale lawyer Willard D. Dover, and Bradenton-based department store chief Robert M. Beall II — that they were “independent” enough under Florida law to fairly consider the payout matter. In his order, though, Gold said “no legal citations or authorities were analyzed” by Steel Hector before it conferred that status on the committee. The judge conducted his own legal analysis, and came to an opposite conclusion. Gold reasoned that the committee was conflicted because its members had approved the transactions at issue in the shareholders litigation, and were themselves named as defendants in the pending litigation. “I do not disparage the integrity of the members of the evaluation committee or the board,” Gold wrote. “The issue is not their integrity but their objectivity and impartiality, both in fact and in perception.” The third “obvious” conflict for Steel Hector cited by Gold involved its defense of FPL’s board and the committee in the parallel federal litigation while the committee was still investigating. Steel Hector attorneys argued there that the arguments of the shareholders lacked merit. “Under such circumstances, Steel Hector could hardly be considered ‘independent counsel.’ Such counsel should be free of any conflicts that might interfere with its ability to render unbiased legal advice,” the judge wrote. Gold found similar problems about the impartiality of board members who served on the committee of outside directors. For example, it was ex-FPL boss Broadhead — who got the biggest payout and who is now a defendant in the shareholder case — who recruited Codina, Dover and Beall to serve on the committee. All three committee members were on the board when it approved the policy changes at issue in the case; Codina also participated in a merger discussion between FPL and Entergy along with Broadhead. “None of these factors were discussed or evaluated when the selection of the evaluation committee members were approved by the board, or when the evaluation committee first met with its counsel,” the judge’s order said. Fueling everything that happened was an enormous pile of money that FPL executives claimed as their due, and that shareholders seek to take back as improperly paid. FPL paid $92.3 million in change-of-control cash to 696 FPL employees. The take for FPL’s eight most senior executives: $62.4 million. Steel Hector’s fees for its eight months of toil as FPL counsel were “substantial,” according to shareholders attorney Gurland. He said shareholders have asked Steel Hector to disclose its fees, but have yet to receive the information. But the shareholders aren’t giving up their inquiry. “We anticipate taking depositions starting soon,” Gurland said. “We plan on deposing Mr. Davis.”

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