Sunday, July 1, 2007
A complex white collar crime prosecution can involve enormous sums for defense counsel, particularly when the lawyers are from leading New York or Washington D.C. firms. A recent district court decision in Westar Energy v. Lake (available below) gives a little bit of insight into just how much money is involved, and the resources the firms commit to defending their client. Douglas Lake was a senior executive at Kansas utility Westar Energy, and was indicted along with former CEO David Wittig on fraud charges. The first trial ended in a hung jury, while the second resulted in a conviction of Lake on some counts related to an alleged fraud involving the use of corporate resources for personal purposes and false reporting to the SEC. In January 2007, however, the Tenth Circuit reversed the convictions, finding insufficient evidence to support some of the charges and remanding for a third trial on others, including a conspiracy count, and Lake was released from prison. In February 2007, the government decided to go forward with a third trial.
Westar has a broad indemnification provision in its by-laws that allows for advancement of reasonable attorney's fees, and through April 2005 the company advanced $4.6 million to Lake's attorneys from Hughes Hubbard in New York and local counsel. After that point, however, Westar refused to pay any further, and Hughes Hubbard has moved to withdraw from representing Lake in the third trial because it has not been paid about $4 million in fees. In addition to his trial counsel, Lake retained Wilmer Cutler from Washington D.C. to represent him on appeal, which cost $2.2 million and involved seven or eight attorneys billing time on the matter. All told, Lake's legal fees in the criminal matter to this point have totaled over $15 million, and he has also incurred costs in defending private securities class actions and shareholder derivative suits.
While the court expressed some concern about the billings by Lake's lawyers, U.S. District Judge Julie Robinson rejected Westar's argument that the billing rates should be capped at the amount a Kansas lawyer would charge and not the rates of New York and D.C. lawyers, a difference of of about two-thirds -- those city-slickers don't come cheap. She noted that if Westar wanted to limit the amount of reimbursement to what a local law firm would charge -- the company is headquartered in Wichita -- it should have put that into the contract. Given the complex nature of the case, Judge Robinson determined that Lake's hiring of New York trial counsel and DC appellate lawyers, along with local counsel, was not unreasonable. The court only required Westar to pay 50% of the claimed fees for Hughes Hubbard and Wilmer Cutler because of questions about the reasonableness of their bills, but still ordered a payment of over $3 million. For future legal fee disputes, the court created a mechanism to ensure that Westar would pay the fees but could still object to amounts it viewed as unreasonable: if Westar wants to object to a bill, then a federal magistrate judge will decide the issue, but it must pay any amounts to which is does not object. This resolution may allow Lake to retain his trial counsel for the third proceeding, which would likely be a significant advantage because of the lawyers' familiarity with the issues. And it sure ain't cheap to defend a white collar crime case, especially when you have to fight to get the fees paid. By the way, guess who pays the costs of deciding how much Lake's lawyers are entitled to be paid? (ph)