General counsel and defense counsel know all too well that corporations are under stress in a world marked by erupting economic, political, and social media crises. A corporate enterprise can be brought to its knees by events beyond its control. A company’s plan to stabilize itself in the wake of a crisis can be threatened by the confluence of bad facts, bad press, and bad decisions.
Outside counsel’s value is measured by its ability to respond to a legal crisis faced by the client. This is a twofold challenge - first, counsel must organize a swift initial response to a crisis after it erupts, and second, it must implement a long-term strategic solution that resolves the legal issues in the client’s favor. This is a significant undertaking. When a corporation is on life support, it relies upon its outside counsel not only to win the legal battles, but also to place it on the road to recovery in the public eye.
A commercial litigation filed in Mississippi in 2004, that still burns today, teaches us that what appears to be a straightforward legal matter can become a powder keg before our very eyes. It begins with a dispute between companies, allegations of theft of trade secrets, and counterclaims. Before you blink, the judge initially assigned to the case goes to jail. Is this a John Grisham novel? No. This is real-life litigation that has mushroomed over the last decade and will reach a crescendo in November 2013 when the trial on the defendant’s counterclaim is scheduled to commence in Jackson, Mississippi. See Agreed Scheduling Order of Judge Jeffrey Weill, Civil Action No. 251-04-642, Hinds Co., Miss., First Judicial Dist. (Jan. 31, 2013).
The case is Eaton v. Frisby. It commenced on July 9, 2004, when Eaton Corporation filed a complaint against Frisby Aerospace, a competitor. Eaton alleged that its trade secrets, contained within certain documents, drawings, and electronic programs, were misappropriated by certain Frisby engineers who were previously employed by Eaton. Frisby counterclaimed, alleging that Eaton was liable for, among other things, unfair competition, interference with existing and prospective contracts, abuse of process and defamation.
This is not the type of litigation that is unheard of in state courts around the country. Yet, the manner in which this litigation has ballooned over the last decade is nothing short of shocking, and proves how uncontrollable litigation can become for any party when wrong turns are made at the forks in the road along the way.
To give the reader an appreciation of the raging conflagration that Eaton v. Frisby has become, the following events are alleged to have taken place following the filing of the complaint:
- Eaton is alleged to have cooperated with and compensated a former Frisby employee, Milan Georgeff, in furtherance of its lawsuit against Frisby. Eaton is subsequently ordered to pay sanctions of over $1.5 million to Frisby related to, among other things, its alleged conduct pertaining to Mr. Georgeff.
- Eaton retains well-known Mississippi attorney and former District Attorney Ed Peters, who has a close personal relationship with Circuit Judge Bobby DeLaughter. DeLaughter initially presides over Eaton v. Frisby and previously worked for Peters as an assistant DA. By way of background, DeLaughter is heralded and widely known for the successful prosecution and conviction in 1994 of Byron De La Beckwith, who killed civil rights leader Medgar Evers in Mississippi in 1963.
- Peters does not enter an appearance for Eaton but is alleged to have had ex parte communications with DeLaughter on behalf of Eaton in furtherance of the Eaton v. Frisby litigation.
- Judge DeLaughter pleads guilty in 2009 to obstruction of justice related to a separate criminal investigation of a Mississippi tort attorney, Richard Scruggs, the brother-in-law of former U.S. Senator Trent Lott. Scruggs was, among other things, alleged to have had improper contact with DeLaughter through Peters. Judge DeLaughter ultimately serves 18 months in prison.
- In 2010, Circuit Court Judge W. Swan Yerger dismisses Eaton’s complaint with prejudice based upon a theory of fraud on the court arising from the alleged ex parte communications between Peters and DeLaughter. See Order of Judge W. Swan Yerger, Civil Action No. 251-04-642, Hinds Co., Miss., First Judicial Dist. (Dec. 22, 2010), at 14, citing Amiker v. Drugs for Less, Inc., 796 So.2d 942, 945 (Miss. 2000); Pierce v. Heritage Props., Inc., 688 So.2d 1385 (Miss. 1997). Eaton appeals to the Mississippi Supreme Court.
- Shareholder lawsuits are filed in Ohio against Eaton, contending that it mishandled the Eaton v. Frisby litigation in Mississippi, undermined its own claim against Frisby, and otherwise committed corporate waste. Frisby files other claims against Eaton in Mississippi and North Carolina alleging antitrust violations and conspiracy arising from, among other things, Eaton’s alleged efforts to disrupt a contract between Frisby and Boeing.
How can a trade secrets case, with a customary counterclaim, become embroiled in unending legal and political wrangling for almost a decade, spawning criminal prosecutions, other litigations, and intense media interest? And what can be done by a litigant such as Eaton to regain control of its destiny, arrest a litigation firestorm that won’t stop burning, and avoid the threat of bankruptcy?
A multidisciplinary approach needs to be employed to transition a corporation from crisis to stability. A corporation in crisis requires a coordinated team approach that stretches from legal and ethics counsel, to crisis manager, to media consultant. By definition, a successful team is one that you would not hesitate to put in front of any government agency, reporter, judge, or jury.
Multiple solutions need to be employed to avoid an Eaton v. Frisby-type debacle. To repair a corporation’s reputation and nurse it back to health, in-house counsel and the client’s business units need to work hand-in-glove to stay on message and avoid missteps. One of the lessons of Eaton v. Frisby is don’t shoot yourself in the foot and be your own worst enemy.
The leaders of the in-house and outside legal counsel teams need to closely manage the transition from crisis to rehabilitation within the courts. The legal team needs to enforce strong discipline within itself and within the corporation’s business units to avoid “loose lips that can sink ships.” In addition to employing a sophisticated legal strategy and stringent ethics oversight, counsel needs to insist that the client administer a communications chain of command that does not send mixed messages to the judiciary or the public. Only then can the corporation in crisis put out the fire and turn the corner.
**This topic, among others, will be addressed at the Corporate Counsel Symposium, sponsored by the Federation of Defense & Corporate Counsel, from September 18 to 20, 2013 in Chicago. The theme of the Symposium is “Corporations in Crisis: Protecting the Brand.” A panel entitled, “Mississippi Burning II: Eaton v. Frisby and the Ruin of Best Intentions,” will be showcased at the Symposium.
To register for the conference or learn more about the FDCC, please visit www.thefederation.org.
Published June 24, 2013.