Tobacco On Trial

Our day began with Joint Defense lawyer David Bernick announcing to Judge Kessler that the defense lawyers had enough free time the days before to banter at length upon the semantics of announcing “a” or “an” hypothetical question. It turns out it is “an hypothetical”. This was the same group that would later gang up on the Department of Justice for challenging Fischel on his definition of a “large” company — when some of his cited cases had as few as 12 employees. Apparently it seemed as clear as day to Dr. Fischel that a large company is a public company, without delimiting it. Rather careless for the group that would argue the semantics of an indirect article for an evening’s activity.

Mr. Bernick and Dr. Fischel early on got into the topic of examples of compliance and non-compliance again, proposing that market share and shareholder value somehow gets corporations to comply with ethical codes. It seemed as if Mr. Bernick and Dr. Fischel were speaking in circles at this point.

As this is a RICO case, the Department of Justice must prove a) that the alleged behavior will continue and b) devise a remedy that will “prevent and restrain” that behavior. Dr. Max Bazerman testified earlier that the tobacco industry’s misconduct would continue without “court intervention to change the incentives and systematic bases operating on defendants and executives” (Bazerman Written Direct p.1). He suggested some potential remedies including removing senior management of big tobacco companies and/or introducing independent court-mandated monitors to ensure that unethical and fraudulent behavior would not incur.

This brings us to the testimony of Professor Daniel Fischel. The Tobacco Industry has brought him in to pulverize all of Dr. Bazerman’s ideas. He seems to follow the ideological notion that there is no reason to assume that “the companies with their current management will fail to follow the directions of the court” (Fischel Written Direct, p. 15).

From his Written Direct Testimony he appeared to be a ballerina/wrestler dancing upon and crushing all that Dr. Bazerman was saying. He seemed to be an expert in everything while Dr. Bazerman was flawed in all that he said. From today’s cross-examination however, the majority of his answers were, “not sure”, “didn’t do research on that”, “I don’t know” etc. You may ask yourself, how does he ever earn the $1000 an hour he is being paid by Defendants. Apparently he seems to be quite a wealthy professor from the University of Chicago.

DOJ attorney Leo Wise spent a substantial amount of time investigating Dr. Fischel’s character. In delving into the details of his income from 2003, we learned that he received $15 million from a non-competition agreement with Nextera after the sale of his company Lexecon. He was receiving a token salary from the University of Chicago but donated it back every year. After the windfall of 2003, he returned his total received salary to the University of Chicago. Before the DOJ dragged out the details, he didn’t seem to think that he has received that much money.

Mr. Wise also dug out some dirt on the University of Chicago’s employment policy. There happens to be an agreement permitting Dr. Fischel to violate the 11 days per quarter permitted to work outside of the university. He seemed to have already earned a whopping $100,000 this quarter ($1000/hour times 100 hours). The Department of Justice seems to be doing a good job of embarrassing Dr. Fischel, as his answers on the stand differed from his written testimony on several occasions.

Dr. Fischel has not done any studies of the tobacco industry, their board of directors as effective monitors, the litigation brought against them, RICO remedies or the history of whether Big Tobacco has violated agreements in the past, before stating his claims of behavior of executives; nor did he ask his lawyers, or the Department of Justice lawyers. To prepare for the testimony, he seemed to read/skim only 2 of Dr. Bazerman’s submitted articles to the court, yet he feels prepared to raze all of his ideas, even after only reading some parts of Bazerman’s own Written Direct at length, while skimming many other sections. It appears with two of Dr. Bazerman’s articles in contradiction, Fischel feels qualified to go on a rampage mowing over Bazerman’s proposals. Strange.

The highlight of crippling the corporate ballerina this morning was when Fischel was questioned about the defendants of the case and his lack of methodology in comparing tobacco CEOs. Mr. Wise asked a serious of questions about various tobacco companies and what Fischel knew about the trial itself. At one point Wise asked him about tobacco companies and BAT. Fischel even hesitated and stumbled in answering whether he knew BAT was a tobacco company or indeed even if it were one of the defendants in this case. He later was unsure of whether Credit Suisse was a foreign company. And this is the man who is an expert on corporate governance? It is like knowing about the structure of the government of Russia but not remembering if it was one of the 50 states or in Europe!

Mr. Wise tried hard at the end to try to strike all of Dr. Fischel’s testimony from the record but to no avail. He has “large problems with [Dr. Fischel’s] methodology” and does not think that Dr. Fischel is being careful, as his evidence on management dismissals is not scientific, just based on press coverage.

The Judge mentioned the 702 rule that even when expert witnesses offer critiques, the reviewer must have credentials. Kessler admits that Fischel is at the minimum levels of the standard but still qualified.

Dr. Fischel is not unfamiliar with working with the upper echelons of what I see as the nouveau elite corporate classes, having consulted to a fair number of them, including the tobacco industry. Mr. Wise actually brings up as well that the grand majority of defense law firms, and some lawyers here in the courtroom had represented Dr. Fischel when he sued his insurance company. Dr. Fischel seemed a bit proud of the multimillion dollar settlement he got from his insurance agency, thanks to — I believe he made direct reference to people in this room, but I’m not sure if he meant it literally or metaphorically.

Despite not being able to see his own conflict of interest in the matters of this case, he did agree that there may be conflicts of interests between the allegedly independent Board of Directors of the tobacco industry, more specifically Philip Morris. The number two and fourteen shareholders–State Street Corporation and JP Morgan respectively–have 82 million and 26 million shares. Fischel admitted the boards have a vested interest in maximizing the industry’s profits.

We later found out that Mr. Bernick’s security blanket is his marker board after announcing to the court that he would be lost without it. Wise kept objecting, saying he was leading the witness through use of the board.

The finesse that David Bernick used in redirecting Dr. Fischel drowned out his previous embarrassment. At one point he asked Dr. Fischel to “give the court a flavor of their [Lexecon’s] professional capabilities.” Compared to the normal flavors of strawberry, chocolate and vanilla we had the choices of Ph.D. recipients, economists and former professors from the University of Chicago. Despite its unmistakably elite status, even Lexecon had a RICO lawsuit against them at one time. To redeem Dr. Fischel in the eyes of the court, Mr. Bernick pointed out that Dr. Fischel has been the Department of Justice’s most-used witnesses.

Mr. Bernick seems to gesture a lot with his hands and dance back and forth with ease between the desks and the safety of the marker board. I couldn’t help but ask myself if he practices in the mirror as the movements sometimes look staged.

Halfway through the morning, one of the members of the press who had been doing a crossword puzzle for the past 2 hours declared he couldn’t take any more of this and left. Shortly after, the other journalist left as well. Later, one independent observer compared the trial to “watching paint dry”. Apparently some of the tobacco industry lawyers agreed as one of them was intently playing Solitaire on one of the laptops in the hive of technology at their table.

Mr. Wise focused a lot on Dr. Fischel’s book, Payback, to show that Dr. Fischel has morality issues himself through his heartfelt support of convicted “junk bond king” Michael Milliken, whom Payback claims was the target of a conspiracy of those who were jealous of him running away with huge pots of wealth from the savings and loans scandals. Wise implied that Dr. Fischel readily defends those who may have little morals.

Dr. Fischel’s main critique of Dr. Bazerman was that hypothetical and test cases to determine how companies behave are not representative of the complexities of real world business solutions. Dr. Fischel’s written testimony adamantly declared that a system of checks and balances already within the defendant companies would prevent the CEOs from acting unethically and unlawfully:

[T]he existence of numerous mechanisms that exist to give managers incentives to act lawfully, coupled with the broad powers vested in Defendants’ boards of directors to monitor and take remedial action to prevent wrongful conduct, provides further assurances that alleged misconduct will not continue in the future. One such mechanism is the ability of boards of directors to replace senior management if circumstances so dictate.

–Written Direct: Daniel R. Fischel Page 8

Dr. Fischel’s Written Direct also states that boards of directors have recently become more independent. His evidence of this: A Wall Street Journal article and a publication called the Business Roundtable–which happens to be made up of CEOs of large companies. Mr. Wise implied that the CEOs of large companies controlled Business Roundable and it could not be objective news.

Dr. Fischel states that Dr. Bazerman’s conclusion about the tobacco industry not changing its behavior is an unsupported assumption that the defendants “will not heed the orders of this court”. It seems as if Dr. Fischel’s negation of Dr. Bazerman is merely calling the other man’s bluff. Whereas the truth of the matter is that for corporations, the bottom line is their market share value and their profits. Mr. Bernick earlier claimed this somehow would make the industry more accountable. To me it sounds as if they are high-tech spin doctors.

It occurred to me that it was indeed strange that the percentage (5 out of the 10) of women lawyers was higher on the Department of Justice side than the tobacco industry side (2 out of 10).

The color of suits also diverged. The tobacco industry lawyers were imitating bruisers, dressed in black and blue, while the Department of Justice were bit more of a color catalog with cream, pink, red, and more traditional colors like grays and blacks.

This entry was posted on Wednesday, June 1st, 2005 at 3:03 pm and is filed under Notes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.