Legal Affairs: Civil Justice
HOW DELTA FLEW CIRCLES AROUND PAN AM IN COURT
Roy M. Cohn, the flamboyant lawyer best known as Senator Joseph R. McCarthy's henchman in the 1950s, once said: "I don't want to know what the law is. I want to know who the judge is." The comment is as crass today as it was then. But more and more, high-priced attorneys clashing over billions of dollars live by Cohn's advice. "I'm paid to win and to take advantage of the system," says New York defense lawyer Dennis E. Glazer of Davis Polk & Wardwell.
That's exactly what Glazer recently did. In a $2.5 billion battle between airline titans Delta Air Lines Inc. and Pan Am Corp., Glazer spearheaded an elaborate three-year legal strategy for Delta that entailed everything from forum-shopping to investigating judges' backgrounds. These maneuvers were neither illegal nor unethical. They merely took advantage of an imperfect, malleable system, in the process costing Delta many millions of dollars for its bevy of lawyers. And for Delta, they delivered a stunning victory in December that saved the Atlanta-based carrier from life-threatening litigation.
TAKE THE EDGE. What makes the Delta case so noteworthy is the tidy way every element of the legal strategy fell into place. But similar high-stakes legal maneuvering goes on everywhere. Lawyers involved in hotly contested courtroom brawls look for any possible edge over their opponents. Cases ranging from product liability to the O.J. Simpson murder trial rely on costly scientific methods to refute evidence. Jury consultants study how characteristics such as race and gender may affect a case. And lawyers search painstakingly for sympathetic legal forums. "There didn't used to be the pressures associated with losing that there are today," says Donald E. Vinson, a litigation-support expert. "Today these things are all a standard part of trial advocacy."
Standard, perhaps, to the practitioners. But few outsiders get tm see just how the course is mapped out in a major corporate litigation, since many key decisions are made behind closed doors. The details of the Delta-Pan Am dispute, which have emerged through interviews and court records, offer a rare glimpse into how lawyers--within legal bounds--leave as little to chance as possible.
The Delta-Pan Am dispute first erupted in late 1991. Pan Am had been counting on Delta to help foot the bill for its comeback. But a $1.7 billion deal soured that was to finance a new carrier, dubbed Pan Am 2, in exchange for Pan Am's profitable transatlantic routes and Northeast shuttle. Broke and grounded, Pan Am took the offensive and sued Delta for breach of contract. As the plaintiff, Pan Am could choose where to sue, and it picked the Bankruptcy Court for the Southern District of New York. The claim: that Delta's interest in the new venture was merely a ploy to capture Pan Am's best assets.
Counting on the generally pro-debtor stance of bankruptcy courts, Pan Am's lawyers didn't even bother to make the routine request for a jury trial. The judge handling the case, Cornelius Blackshear, had even more going for him, they figured. He was already presiding over Pan Am's bankruptcy and was aware of the devastation the carrier's woes had brought to thousands of now-unemployed airline workers. And Blackshear's experience as a former New York City cop might make him sensitive to their plight. Blackshear declines comment.
But as much as Pan Am favored Blackshear, Delta opposed him. Recalls Glazer: "Our goal all along was to look for alternatives." That so much energy would be devoted to choosing venue isn't surprising. A study of federal cases from 1979 to 1991, which is to be published this fall, found that plaintiffs won early victories in 73% of the suits that remained in the court in which they were originally filed. In transferred cases, plaintiffs won just 26% of the time. "Transferring a case is a way of overcoming court bias," says study author Theodore Eisenberg gf Cornell Law School. "There is room to manipulate the system."
MORALITY PLAYS. Delta also fought hard to avoid a jury. And with good reason. A jury consultant hired by Delta to conduct a series of mock trials found jurors especially susceptible to the emotional aspects of the case. The results were "mixed," says Glazer, but troubling enough to worry Delta.
Early in the case, Delta had argued against a move by Pan Am to consolidate the dispute before Blackshear with two other cases brought in New York district court by former Pan Am flight attendants and pilots. Those cases were to go before juries. "Jurors tend to see things as a morality play," explains Robert S. Duboff, the consultant Delta hired. "They decide morality by their own standards, not by legalisms."
Luckily for Delta, the cases were consolidated only for discovery purposes. The airline employees' lawsuits landed in the hands of District Court Judge Robert P. Patterson Jr., a man whose Ivy League credentials and ability to grapple with complex business matters matched the profile of Delta's ideal jurist. Before coming to the bench, he had defended companies as a partner in an old-line New York firm for 28 years. Patterson declines comment.
Having stumbled upon a judge they liked, Delta hatched a plan to get him. Delta began filing motions before Patterson to gauge his interest in the airline business. That meant including in court papers extra details about the dispute and about the industry that might pique the judge's intellectual curiosity. "We wanted to hook Patterson into the case," says Glazer. The idea was to make the judge want the case if the possibility arose.
Then Judge Blackshear handed Delta a gift. He told the lawyers that because of a crowded calendar, he would be unable to preside over the case. Delta didn't want to land in another bankruptcy courtroom. So it argued for consolidating the dispute with the former employees' cases pending in district court before Patterson--a 180-degree shift from its original position that the cases should not be joined. "Delta's change in litigation tactics smacks of forum shopping," complained Pan Am in court records. Nonetheless, in the name of efficiency, Patterson took the unusual step of pulling the case out of bankruptcy court and into his own. A trial was set for May, 1994.
Now, all that was left to decide was who would hear the case: a jury or Patterson. Since Pan Am hadn't initially demanded a jury, it lost its absolute right to one. The issue remained unresolved until just days before the trial began, forcing the lawyers to prepare for two types of trials. Delta spent $75,000 on more than 40 exhibits aimed solely at jurors. Pan Am also invested heavily in easy-to-read graphics. Those efforts were in vain when Patterson announced, to Delta's delight, that he alone would hear the case.
For more than five grueling weeks, the battle raged. And with every passing day, it became clearer that Delta's instinct about Patterson had been right. Pan Am's 43 witnesses failed to persuade the judge. The witnesses included Pan Am's former CEO, Russell Ray, a portion of whose testimony Patterson termed "questionable." "In every instance, the judge took the slightest comment made by the other side and said it was right," fumes Pan Am creditors' committee attorney Leon C. Marcus.
NO APPEAL. When the time came for Delta to present its side of the case, it called only 15 witnesses. Delta's argument: That it had acted in good faith and that Pan Am's financial position had deteriorated so much from the time Delta had agreed to the $1.7 billion deal that the reorganization plan was no longer workable.
Patterson agreed, issuing a stinging 209-page opinion on Dec. 22 that found virtually every factual question in Delta's favor. His decision boosted Delta's sagging stock price by four points the next day. "The judge went so far down the line on Delta's side that I can't even think, if I had done just one thing differently, the case would have gone our way," laments Pan Am's lawyer David E. Brodsky. On Jan. 10, Pan Am declined to appeal the ruling.
Delta's victory wasn't just the triumph of a clever game plan. The carrier also had a solid argument and some good luck. But Roy Cohn was definitely on to something.
JANUARY, 1991 Pan Am files for bankruptcy in New York.
AUGUST, 1991 Delta agrees to a $1.7 billion deal, which includes transfer of Pan Am's transatlantic routes and Northeast Shuttle. Delta also proposes to finance
a new carrier dubbed
Pan Am 2.
DECEMBER, 1991 Pan Am ceases all operations after Delta declines to pump in millions, arguing that Pan Am's reorganization plan is doomed.
JANUARY, 1992 Pan Am sues Delta in bankruptcy court for $2.5 billion, alleging breach of contract and bad faith.
AUGUST, 1992 Ex-Pan Am employees sue Delta for $1.1 billion, claiming that Delta's refusal to fund Pan Am 2 cost them jobs. A second employees' case is filed in September.
MAY, 1994 The trial
begins before District Court Judge Robert Patterson Jr. and lasts for five weeks.
DECEMBER, 1994 Patterson rules overwhelmingly in Delta's favor.
JANUARY, 1995 Pan Am declines to appeal the case and pays back $115 million it borrowed from Delta plus interest.
DATA: BUSINESS WEEKBy Linda Himelstein in New York